Granite Real Estate Investment Trust (GRP.U) 2024 Q4 法說會逐字稿

Good morning. My name is Constantin, 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 2024 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 would now turn the call over to Teresa Neto to go over certain advisories.

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 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 US.

Securities and Exchange Commission from time to time, including the Risk Factors section of its annual information form for 2024 and Granite's management discussion and analysis for the year ended December 31, 2024, filed on February 26, 2025. So Granite posted Q4 2024 results ahead of Q3 and ahead of management's expectations, largely driven by strong NOI growth, positive impact from foreign exchange as a result of the strengthening of the US dollar and a few net positive adjustments, which I will go into detail later. FFO per unit in Q4 was $1.47, representing a $0.12 or 8.9% increase from Q3 '24 and a $0.20 or 15.7% increase relative to the same quarter in the prior year. FFO per unit for fiscal year 2024 was $5.44, representing a $0.47 or 9.5% increase from '23.

The growth in NOI this quarter is primarily derived from strong same property NOI growth, enhanced by double-digit leasing spreads in the US and the lease commencement at a previously 308,000 square foot vacant unit in the US in the fourth quarter. NOI growth was further enhanced by foreign exchange as the US dollar was 3.5% stronger, partially offset by the euro being 0.9% weaker in comparison to Q3.

Also impacting FFO this quarter were a few adjustments with a net positive impact, including a $1.6 million tax provision reversal relating to the prior tax years, a $0.5 million credit to capital tax, which is included in G&A expenses and a foreign exchange gain realized on monetary assets and liabilities held or settled for $2.8 million, partially offset by a negative $0.8 million adjustment to noncontrolling interest expense relating to a catch-up adjustment pertaining to the net income of our joint venture partner at our Houston development site.

Excluding these specific four adjustments, FFO per unit would have been $1.41, still 4.5% ahead of Q3. AFFO per unit in Q4 was $1.25, which is $0.03 higher relative to Q3 and $0.10 higher relative to the same quarter last year, with the increase in Q3 mostly tied to FFO growth partially offset by higher maintenance capital expenditures, higher tenant allowances incurred due to timing of leasing turnover and higher leasing commissions primarily related to leasing activities in the US and Canada, including the lease-up of two previously vacant units in the US and an early lease renewal for a property in the US in the fourth quarter.

AFFO-related capital expenditures incurred in the quarter totaled $11.3 million, which is an increase of $6.1 million over Q3 and $5.3 million over the same quarter last year. However, for the 2024 year total AFFO-related capital expenditures came in at $25.1 million, in line with management's expectation and guidance. For 2025, we expect AFFO-related capital expenditures to come in at approximately $40 million for the year, with the increase relative to '24 being mostly related to additional roofing and parking lot work planned for '25 as well as additional forecasted spend on tenant allowances in support of expected new leasing activity. Same-property NOI for Q4 was strong relative to the same quarter last year, increasing 6.3% on a constant currency basis and up 8.4% when foreign currency effects are included.

For 2024, Granite's four-quarter average constant currency same-property NOI growth came in at 5.9%, in line with management's expectations. For 2025, we are updating our forecast for constant currency same-property NOI based on a 4-quarter average to come within a range of 4.5% to 6%, which Kevin will address in his remarks.

G&A for the quarter was $8.3 million, which was $1.1 million lower than the same quarter last year and $4.9 million lower than Q3. The main variance relative to Q3 is $5.6 million favorable fair value variance in noncash compensation liabilities, partially offset by a $1 million unfavorable variance due to corporate restructuring costs relating to the uncoupling of Granite's stapled unit structure. But that does not impact FFO or AFFO metrics.

G&A expenses that do impact FFO and AFFO were approximately $0.3 million lower than Q3, which is mostly related to an approximate $0.5 million capital tax refund mentioned earlier, resulting from changes in tax regulation in the state of Tennessee. For 2025, we continue to expect G&A expenses that impact FFO and AFFO were approximately $10 million per quarter or roughly 7% of revenues.

Interest expense was higher in Q4 relative to Q3 by $1.5 million, while interest income also increased by $2.2 million as compared to Q3, resulting in a decrease to net interest expense. As previously mentioned on the Q3 call on October 4, Granite completed $800 million bond offering in two series. The net proceeds from the offering were used to immediately fully repay without penalty Granite's 2025 term loan with a principal balance outstanding of $400 million, which had a maturity date of September 15, '25.

The remaining net proceeds from the offering were held in short-term cash deposits until used to fully repay Granite's 2024 term loan with a principal balance outstanding of $185 million upon maturity on December 19. For the period from October to December '19, 2024, Granite earned interest on these net proceeds from the offering at approximately 4.33%. Therefore, relative to Q3, interest expense increased due to the October 29 debentures being outstanding at the same time as the 2024 term loan which was fully offset by the interest income noted previously, resulting in a net in a decrease and net interest costs of $0.7 million.

Post quarter end, on February 4, Granite completed its inaugural of $300 million floating rate note offering which, together with an existing cross-currency interest rate swap results in an effective fixed rate of 0.27% for the year of the term of the '26 debentures. Net proceeds from the offering were used to immediately fully repay without penalty Granite's December 2026 term loan with a principal balance of $300 million, which was due to mature on December 11, 2026.

The refinancing is expected to save Granite approximately $0.03 per unit per annum in interest expense for the next 2 years. On December 31 and prior to the completion of the refinancing in February, Granite's weighted average cost of debt was 2.74% and the weighted average debt term of maturity was 4.3 years. After the refinancing, Granite's weighted average cost of debt is now 2.66%, with the weighted average debt term to maturity remaining unchanged at 4.3 years. With Granite's next maturity now in September 2026, we expect interest expense to remain stable over the next approximate two years at roughly $23 million per quarter, barring any new transactions. For income tax, Q4 2024 current income tax was $0.9 million, which is $0.8 million higher than the prior year and $1.8 million lower as compared to Q3.

The movement in current tax relative to Q4 2023 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 all of Granite's current income taxes generated from its European region. As in prior years and mentioned earlier, Granite realized a credit to current income taxes of $1.6 million in Q4 due to the reversal of prior year tax provisions. For 2025, we are expecting current income taxes to remain at current levels at approximately $2.5 million per quarter. Also mentioned earlier, Granite realized foreign exchange gains and FFO of $2.8 million in Q4. This is a $3.6 million increase in foreign exchange gains in comparison to Q3.

The items relate to the remeasurement of cash and monetary assets and liabilities denominated in foreign currencies and held in Canada primarily as a result of the strengthening of the US dollar. Now looking out to 2025 estimates. Granite is forecasting FFO per unit within a range of $5.70 to $5.85, representing an approximate 5% to 8% increase over '24. For AFFO per unit, we are forecasting a range of $4.80 to $4.95, representing an increase of approximately flat to 2% over 2024 and fully reflecting the expected increase in AFFO-related capital expenditures noted earlier.

The FFO per unit forecast includes assumptions of some new leasing of vacant space, primarily in the second half of 2025. The high end of the range reflects foreign currency exchange rates of $1.50 for the Canadian dollar to euro and $1.45 for the Canadian dollar to US dollar exchange rate. On the low end of the range, Granite is assuming exchange rates of the Canadian dollar to euro of $1.45 and the Canadian dollar to US dollar of $1.40.

Granite will provide updates to guidance each quarter as warranted based on leasing activity executed to date. Granite's balance sheet comprising of total assets of $9.6 billion at the end of the quarter was positively impacted by $288 million of translation gains on Granite's foreign-based investment properties, primarily due to the 6.4% increase in the spot USD exchange rates and 2% increase in the spot euro exchange rate, respectively, relative to Q3, partially offset by marginal movement in the fair valuation of Granite's portfolio with a net fair value loss of $1.5 million.

Trust's overall weighted average cap rate of 5.3% on in-place NOI increased 5 basis points from the end of Q3 and has increased 8 basis points since the same quarter last year. Our total net leverage as of December 31, '24 was 32% and net debt-to-EBITDA was 6.8 times, which is slightly lower relative to Q3 and lower than Q4 2023 as a result of NOI growth, including the completion and stabilization of the majority of Granite's development properties. Granite's current liquidity is approximately $1.1 billion, representing cash on hand of approximately $120 million and the undrawn operating line of $998 million.

As of today, Granite has no borrowings under the credit facility, and there are 2.4 million of letters of credit outstanding. Granite's recent refinancing will have no material impact on its net leverage, net debt-to-EBITDA and liquidity position. Granite has been active as an NCIB for the three months ended December 31, '24, Granite repurchased 23,000 units under the NCIB at an average unit cost of $69.08 for total consideration of $1.6 million.

During the year 2024, granite purchased 667,300 units at an average cost of $68.54 for total consideration of $45.8 million. Post year-end, Granite has purchased 459,100 units under the NCIB at an average cost of $68.75 for a total consideration of $31.6 million.

I'll now turn the call over to Kevin.

Thanks, Teresa, and I frankly don't have a lot of prepared comments to make. I think there will be a lot of questions, so we're happy to get to that. I do want to highlight a few things about the quarter and the year for you. Beginning with same-property NOI, just to highlight the fact that it increased each quarter. And in the fourth quarter, it was muted somewhat by our Utrecht property vacancy in nonrecoverable costs.

And the reason why I'm highlighting it is Utrecht is a technically a redevelopment site of ours in the Netherlands. And we keep it as IPP because we're not sure ultimately what we're going to do with the asset. But at the end of the day, we're unable to offer term to prospects. So it does limit our ability to lease. And I just want to highlight that.

It is having an impact on our same property NOI performance, but it is complete to us a redevelopment site. The final thing on same-property NOI, I wanted to highlight is that our US portfolio generated 6.5% same property NOI growth in the quarter, which was very strong. Rent increases, just to point out again that they naturally fluctuate each quarter for expiries within a quarter, and they're having no impact, as Teresa mentioned on our guidance for 2025. The team also signed, I think, over 400,000 in new leases and 1 million square feet of renewals in the quarter at an average increase of 22% over expiring rents.

And to date, as noted, we have renewed just under 70% of our 2025 expiries at an average increase of almost 45%. And I think we remain on target for an average increase in 2025 on renewals of 30% to 35%. The third thing I wanted to highlight is our cash position. We finished the year with $126 million in cash. That is up $10 million over 2023 despite a 3.1% increase to our annual distribution and the fact that we deployed $46 million on unit buybacks and $34 million on development in 2024.

And seeing as at the fourth quarter end of the year, I wanted to highlight FFO, NAV and NOI per unit metrics, which I hope you find helpful or useful. Over the past three years, our FFO per unit has increased by 38%. That is an annual growth rate of 11.5%, all while reducing our debt to EBITDA from 8.1 times to 7.1 times over that period. Over five years, our FFO per unit has grown 50%, that's an 8.5% annual growth rate. NAV per unit has increased or has a five-year CAGR of 9.6%.

This, despite an $850 million downward adjustment in price associated with the expansion in cap rates and discount rates. And finally, NOI per unit, which is something I'd like to track because as we can see with some other REITs, it is possible to grow NOI dilutively. Our NOI per unit has increased for 12 straight quarters and is up roughly 46% and over the past three years, that is a CAGR of 13.6%. And just to highlight the fact that cash NOI increased by $2.4 million over the third quarter, which is $0.04 per unit. And finally, just to recognize the new development that we announced in Houston, new build-to-suit on a long-term lease with a Fortune 50 company, representing the third phase of our development site in Houston.

I think the team did a fantastic job at landing this opportunity and negotiating this lease and this development at a very attractive return with income expected in late 2026. And I think, as importantly, it displayed very strong validation for our site and our location. And that's it.

On that note, I'll open up the line for any questions. Operator?

(Operator Instructions)

Mike Markidis, BMO Capital Markets.

Thanks Operator. Good morning, Kevin and Teresa. Just two questions from my end. one somewhat granular, one more high level. I guess I'll start with the granular one, Teresa, I think the $2.6 million noted was that foreign currency gains that contributed to FFO this quarter.

Yeah. That's correct $2.8 million. That's correct.

Sorry, $2.8 million. Okay. And I guess that's in typically, you've got a little bit of a loss on your callers and contracts. So how do you expect that to play out going forward? I mean I know it's dependent on currency, but is there anything anomalous.

I think that's it was a bit of an unusual quarter. It's actually related to our term loan that we actually paid out. For accounting purposes, that loan was no longer effectively an accounting hedge. But it's still part of our net investment because it was euro swap. But the point is it's a US based loan, and it gets translated and that unfortunately has to go through fair value as opposed to sorry, through the P&L as opposed to the OCI.

So you're seeing it flow through the P&L, which is a bit unusual because typically, a lot of our fair value and foreign currency adjustments are going through OCI. But in this case, it was basically not accounting hedge for a period of time until we repaid it in December. So and then, of course, the swift movement and strong movement of USD in Q4, that just sort of added fuel to the foreign currency gain effectively. But we always have like monetary assets and liabilities sitting in our Canadian subsidiary, which does get translated. We try and minimize it, but it does have some swings up and down.

But I think particularly because we were holding on to this term loan for this period of time, in an unhedged position, it led to a larger than normal gain. For contrast, in Q3, we actually had a $900,000 loss in the same kind of category. So I wouldn't plan for any of this. I mean I wouldn't forecast anything.

No, and we typically don't. We typically just run it at zero, and it's usually plus or minus, not that significant, which is why I asked. And can you remind me, was that in your 141 ex items number or like it adjusted or was that excluded

No, it's excluded. It's excluded. The 141 does not include the $2.8 million.

Does not include the $2.8 million. Okay. Awesome. And then just okay, so moving forward and looking at the guidance, thanks for the G&A guidance there. Just with respect to the NOI, I know you guys are expecting some lease-up of vacancy in the back half of the year, but how do you expect your occupancy to traject sort of throughout the year?

Does it stay stable in the first half and then move higher? Or do you expect it to actually sort of leak a bit lower before gaining in the back half?

Yeah, it could. I mean just -- it depends on the timing of the expiries and some of the move-outs that we have if the occupancy could go lower in the second quarter, and we expect it to increase in the third and fourth quarter after that.

Sam Damiani, TD Cowen.

Thank you. Good morning, everyone. So maybe just to pick up where Mike left off there. On the occupancy -- or actually on the same property NOI guidance, the range, aside from, I guess, a bit of occupancy fluctuation midyear. Like what scenarios would cause NOI growth to be at the lower end and also at the higher end of that guidance range.

Well, I would say if we were to do no new leasing it, obviously, if we were to do no new leasing, we would probably missed a range, but probably not by much. To backfill what we expect to vacate this year, which is roughly $1 million would get us within the range of 4.5% to 6% same property NOI. And if we were to lease -- if we were to complete 1.5 million of new leases, it would be in the upper end of the range.

Okay. That's helpful. That's helpful. And I guess in the outlook sort of statement in the MD&A, there was a comment about market rents continuing to moderate broadly. Could you maybe just expand on what the meaning of that upgoing that phrase in there?

I can't remember exactly what that phrase is about, but it certainly continues to make sense for us. So when we look at our markets that we operate in, Sam, some of the markets rents continue to move up and some of the markets, the rents -- the market rents continue to go down.

So for example, of our markets, the worst performing market for rental rate growth was the GTA, which is down 6% year-over-year. The strongest market that we had were Houston at 17%, up 17% and Nashville is up just over 20% year-over-year. But overall, I think we would agree that market rents are continuing to moderate.

Okay. Got it. And last one for me. Just on the Houston, congratulations on that, by the way. Just looking at the site plan. Is this project situated on the parcel that was earmarked for 1 million square foot building. I'm just trying to figure out where this -- what this building sort of represents on the plan?

Correct. So you could see two smaller buildings on that parcel, which was always an option for us. We wanted to keep 1 million available, but I think this is the right size for that site and for that parcel in particular, 400,000 feet roughly.

And does it retain like space on that parcel for another building? Or is this basically going to be a lot of trailer parking on that approach?

Correct. No, it allows for another building of parcel.

Brad Sturges, Raymond James.

Hey. Good morning. Just to keep on the theme of -- on leasing. Just I guess I'm curious, since the US elections and just thinking about your US markets. Like have you seen any noticeable change positively or negatively on kind of leasing velocity or activity?

And is that translated into more activity in certain markets whether it's the Mid-West or further south?

Well, I would put it this way. I think we didn't see -- it wasn't as though we saw a lot of pickup to immediately following the election or January. We are seeing a pickup since maybe the beginning of February. Activity has been very good. I think this is one of the only times I recall where we've had multiple prospects on all of our larger availabilities.

What we're still winning for though is deal flow. We're waiting for these transactions to clear. We're waiting for tenants to sign leases. And not that we don't expect that to happen, but I think that's sort of the next phase of this that we're waiting for. So activity has been strong, and we'll see these important times.

I think this is a better conversation in May or in the second quarter because that will really give us a picture of how much the market is firming up in the US.

Okay. And when you think about occupancy as you head into the back half of the year, is still the thought process that you'd get into the 96%-plus range, maybe by the end of the year? Or how do you think about that timing...

I mean, right now, I think we would prefer to be cautious. I think we would say 95.5% to 96% in that range for the end of 2026, I think, would be a prudent target.

Matt Kornack, National Bank Financial.

Good morning, guys. Just returning to your comments on the 1 million square feet of kind of known non-renewals. I think you have $1.7 million of uncommitted. Can you give us a sense as to the geographies as to where you're having tenants not take space and maybe the prospects on that space as well?

Yeah. We have 370,000 square feet remaining in Canada, 1.2 million in the US and 150,000 square feet in Europe.

And is your thought process from a vacancy standpoint that -- all of that would be non-renewals or --

No, no. I think we said we expect it to renew between 80% to 85% of our expiries in 2025, which is a very strong number. But that still means roughly -- we expect roughly 1 million square feet of expiries the tenant will not renew.

Okay. And then with regards to leasing and the rent spreads, you disclosed, I think, the 43% figure for that, that has been committed to date. And I think you said 30% to 35% for the fullness of the year. Can you give us a sense as to what those spreads look like in your geographic regions?

I don't have it in front of me, Matt, but I think the remaining ones we have at an average of 20% increase overall.

Himanshu Gupta, Scotiabank.

Thank you and good morning. So just on the leasing theme, any tenants on the watch list here? And any update on true value and basically any tenants on bankruptcy watch list?

Yes. We don't have any one, I think, on the tenancy watch list. As an update for true value, we're in advance discussions. We do it best. We do not have a signed agreement yet, but we hopefully will have an update on the next call.

Okay. And in your 2025 guidance, do you assume like full rent from true value for the full year?

We don't have anything specific in there regarding true value or tariffs, but I think overall, we've tried to be cautious. I think we're setting guidance at a level that we're very comfortable we will achieve or we're comfortable that we will achieve. I don't think it takes anything specific into account.

Got it. Okay. Fair enough. And then you mentioned tariffs and obviously, the Magna exposure. So any thoughts there?

I see you have two special purpose properties in the GTA, built-in specifically. Have you heard anything from Magna or any update there?

No, absolutely not. And we just completed a renewal with Magna and it was business as usual. Just on the tariff side, I just would make a few points on that. And I mean, one is long term. I mean, the impact on industries and sectors and tenants in Canada, it's obviously going to depend a lot on the extent of tariffs and the length of time that they're in place.

But we don't anticipate a material impact on our Canadian portfolio in the near term. And frankly, I'd be more concerned about tenants in markets like London and Windsor. Cater more specifically the cross-border distribution. And I will make a point of Magna as well. Magna started in the GTA.

It's been an operation here for over 65 years. And we, frankly, don't anticipate that changing, particularly given the production and supply chain takes several years to establish and don't change over a period of months. And then the final thing, which I think is getting missed is the natural hedge that is provided by our US portfolio on concerns regarding tariffs between Canada and the US.

So if there were tariffs that had a material impact on Canadian tenants or our Canadian portfolio, I think there's an understanding that there would be a commensurate appreciation of the US dollar against Canadian dollar.

Thereby increasing our income from our US portfolio, thereby increasing our overall income. So we found that to be a rather natural hedge, not that again, as I said, we're not anticipating a particular threat against our Canadian portfolio, but just the natural hedge of the US denominated income from our portfolio seems to be missed by a number of investors.

Got it. Thanks for the color on Magna. And now maybe the last question is on the US markets. And specifically, if I look at Indianapolis, Indie there or Memphis? I mean would you say these two market continues to be soft, and this is where you have some vacancy. So we'll have to wait for those markets to get better before you show up better leasing results there?

A few things I would say to that. Can we just start with the 6.5% same property NOI growth for the fourth quarter, I'll start it there. That's a pretty good number, I think, by any measure. Two is I didn't hear the middle. I heard Indie and I heard Memphis, and I would say Memphis is actually doing quite well.

Indie, we still have our availability there. The activity on both the buildings has picked up. But again, we still need to see some actual leasing being done. So I would agree that Indie is softer right now, but Memphis has been a strong market for us. I think the past 6 months, and we expect it to continue to be healthy in 2025.

I didn't hear the middle --

Yeah. No. I spoke about those two markets only. And then third follow-up was like Nashville continues to be rather strong. I mean, on the other side, -- are you surprised that you're taking a bit longer to fill those two properties, which are still vacant?

Not really because, I mean, we're holding these are -- we consider these to be prestige and industrial, and we are looking for a premium in rents there. So yes and no. We would have thought it would have been leased by now. But at the end of the day, we are not the lowest cost alternative in the market, and we're not trying to be. So I think we can afford to be patient for the right tenant and the right deal, and that's part of the reason why it's taking longer than maybe some other properties would.

Pammi Bir, RBC Capital Markets.

Thanks. Good morning. Just maybe sticking with the whole tariff discussion. Are you seeing any of your US tenants starting to maybe build inventory levels? You mentioned a pickup in activity. Just curious if that's -- if you're seeing any of that take hold?

No, I don't think there's anything. I mean we're paying obviously paying more attention to our US tenants than we normally would in a sort of environment like this, but we're not seeing any specific reaction to tariffs.

Yes. And yes, okay. And then just coming back to Kevin, your comment about occupancy dip in Q2. Just maybe more generally, I just want to confirm, is this really more specific to the US? Or is it maybe a little in Canada sort of in Europe?

Yeah, it's just based -- I think it's more the US is based on the expiries that are expected to occur over 2025.

Okay. And I think you said 95.5% to 96%. But did you say by the end of '25 or '26?

Oh, sorry, I meant '25.

Okay. All right. Just last one for me. On the Brantford site, what kind of interest have you seen in terms of building out or any build-to-suit inquiries on some of the remaining land there?

We've had a few I think, Mike, they've kind of been smaller, right, recently sort of in the 100,000 to 200,000 range -- Yeah. We've had a few, but nothing that sort of advanced to a serious stage yet.

And I guess to maybe just to clarify, you're not looking to start anything on spec in any of your markets at this point? Are you?

No.

Sumayya Syed, CIBC.

Thanks. Good morning. First, a bit of a clarification on the AFFO guide. So there's a mention there of some additional spend on tenant allowances. Is that just based on the sheer size of the leasing pipeline or generally more allowances than you would have done or a combo of both?

First of all, I think the majority of the increase is actually tied to maintenance CapEx, so roofing and parking lot work. Yes, we are projecting higher tenant allowances relative to '24 about $5 million more. But I think it's more tied to the fact that we do have some vacancy. We're not -- in the past, we're 99% occupied, but we do have some vacancy and new leasing, and typically, the TAs are going to be higher with new leasing -- associated with new leasing. So it's not so much that the TAs themselves are juiced up.

It's more just the fact that we have new leasing on vacancies.

Yeah. And Sumayya, it's Kevin. Just to point out too, we highlighted last year. With the renewal on gross, 5.3 million feet with no TAs, no leasing commission, so that was one of the reasons why you look at 2023 sorry, just --

Yeah, it was muted. Yes, we didn't -- with the renewal in January, there was nothing associated with it. Yes.

Yeah, sorry. I meant 2024, heading into 2025, it certainly would be a difference for 2025.

Okay. Got it. And then just on the development of projects and Kevin, you kind of touched on it, it looks like the lease rate is about 65%. So for the assets that are taking longer to lease up and noting that the rents so far have been sticky or better. But do you think that reducing rents would actually help?

Or is it not so much a factor of rent just kind of continued deferred decision-making?

Yeah, I don't think it would. And I don't think we would need to do that. I think we're still willing to wait for the right deal. But I don't think -- it's -- the tenant is going to make a decision just based more on the location and the quality of building, I don't think you're going to lose the deal over $0.50, something like that.

Okay. And then like also along the lines of tenant behavior, are you seeing any changes in demand depending on, I guess, different size levels? Or is the trend of deferred demand kind of even a widespread across the different, I guess, square footage --

I must say, I think I made the comment before, I am encouraged by the level of activity on our larger availabilities. And a few of them want half the building or a portion of the building, and few want the entire building, I would say that there is more prospects today looking for the entire building than we've seen in the past. So I would say just overall, we are seeing a pickup in larger requirements.

(Operator Instructions)

Matt Kornack, National Bank Financial.

Sorry, two quick follow-ups. Going to Magna, I think in the Globe and Mail last week, there was some -- and this is purely hypothetical, but speculation that they could potentially sell the European auto manufacturing business, possibly to a Chinese manufacturer that would want to build in Europe. Can you give us a sense to the protections in the lease or what would happen in that type of scenario? Just out of curiosity?

Well, just in general, I mean, there you do have rights. The landlord has right. I don't want to get any specifics about the lease, but the landlord does have rights on assumption of a lease or transition of a lease to a new tenant. So we certainly would have rents under the lease regarding a replacement of the credit.

Okay. Fair enough. And then someone will circulate, I'm not sure exactly who it was that Samsung potentially has put up some space for sublet within your portfolio. I think they're in your top 10 tenants, but you've got some lease remaining there. Any idea as to what you'll do with that space or prospects?

No. I mean there has been some interest in the space, very limited because they're still almost 2 years left on the lease. But our understanding in Samsung is looking to sublease their space until the end of the term. And if we can be involved in that process, we'll be involved in that process.

And to ask that, I mean, can you give us. I'm not as familiar with the I guess, that Pennsylvania market, but the strength of that market at this point, maybe leasing fundamentals?

Do you want to try to jump in here?

I mean, it's a great building. It's a great location and at least currently, the market metrics are positive. So I mean, there's other buildings that will be worse to get to back if we end up doing that than the Samsung building. So not only the concern about it. We're working well in the tenant hard and speak.

And as Kevan said, there's still two years left on it. A lot of things can change by then obviously before we get to that stage. There should be inherent upside would be in-place rents to market as well.

There are no further questions at this time. Mr. Gorrie, I turn the call back over to you.

All right. Thank you, operator. So on behalf of management and trustees, thank you for taking part on the Q4 call, and we will speak to you again in May.

This concludes today's conference call. You may now disconnect.