Good morning, ladies and gentlemen, and welcome to the conference call of Granite REIT. Speaking to you on the call this morning is Kevin Goeley, President and Chief Executive Officer and Teresa Neto, Chief Financial Officer. Before we begin today's call, I would like to remind you that statements, 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 as well as potential impact of COVID-nineteen 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 that are subject to known and unknown risks and uncertainties. These risks and uncertainties are discussed in Granite's material filed with 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 3, 2021. Readers are cautioned not to place undue reliance on any of these forward looking statements and forward looking information. Granite undertakes no intention or obligation to update or revise any of these 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 standardized meaning under International Financial Reporting Standards.
Please refer to the audited combined financial results and management discussion and analysis for the year ended December 31, 2020. For Granite Real Estate Investment Trust and Granite REIT Incorporated. Another material is filed with Canadian Securities Administrators and U. S. Securities and Exchange Commission from time to time for additional relevant information.
I would now like to turn the call over to Kevin Gorey. Please go right ahead.
Thank you, operator. Thank you, everyone, for taking the time to join us on our Q4 and full year 2020 earnings call. I hope everyone is doing okay. As usual, I am pleased to be joined this morning by Teresa Neto, our CFO Oren Coomer, Our Executive Vice President of Real Estate and Michael Ren Perez, Executive Vice President and Head of Investments. For our call this morning, Teresa will begin our discussion with a review of the financial highlights, and I will then provide an update on our operations, REIT.
Acquisitions, Development and ESG activities and then open up the call to any questions that you may have. Teresa?
Great. Thanks, Kevin, and good morning, everyone. Granite's 4th quarter financial results completed a year of Strong performance in 2020 with Granite posting FFO and AFFO per unit growth for the year of 9.9% and 8.2%, respectively, relative to 2019. FFO per unit in Q4 was $1.09 or 10% increase relative to prior year REIT. And 0 point 0 $4 higher than Q3.
Included in this quarter's FFO is the reversal of 1,700,000 Current income tax provisions in Europe or tax positions relating to taxation years that have become statute ARD, offset partially by the temporary dilutive impact of the $288,000,000 equity offering that closed on November 24, as well as the $500,000,000 bond offering, which closed on December 18, where proceeds have not yet been fully deployed. FFO this quarter was positively impacted by NOI growth from acquisitions completed in the year As well as strong same property NOI growth, partially offset by negative foreign exchange translation of our foreign based income, representing over 85% of our FFO as the U. S. Dollar and euro weakened by 2.2% and 0.3%, respectively, relative to Q3. Part of the foreign currency translation loss was mitigated through Granite's hedging program, which utilizes derivatives that protects Granite against significant declines in both the U.
S. Dollar and euro. The settlement of such U. S. Dollar foreign REIT.
Exchange derivatives resulted in approximately $1,000,000 of foreign exchange gains realized in the 4th quarter, partially offsetting the translation losses. Granite's AFFO on a per unit basis in Q4 was $0.94 which is $0.06 or 6.8 percent higher than prior year and $0.03 higher than Q3. AFFO related capital expenditures, leasing costs and tenant allowances incurred in the quarter were $2,300,000 which was higher than the $1,600,000 in the same quarter last year and higher than the $800,000 incurred in Q3. Fiscal year 2020 maintenance CapEx and leasing costs came in lighter than expected, totaling only $6,200,000 due to the delay of certain projects over the Lease. Spring and summer months and also impacted by leasing activity that did not occur at Granite's Novi, Michigan property.
2020's maintenance CapEx spend is not reflective of Fort maintenance CapEx trends. As mentioned in the Q3 earnings call, we are expecting maintenance CapEx Tenant allowances and leasing costs to increase in 2021 to approximately $15,000,000 or about $0.30 per square foot. AFFO also continues to be impacted by the temporary dilutive impact of the November equity and December bond offerings mentioned earlier. As a result of a relatively low CapEx quarter and strong FFO performance, the AFFO payout ratio came in below 80% REIT. 79% for the 4th quarter, contributing to a full year AFFO payout ratio of 77%.
NOI on a cash basis for the quarter increased $13,600,000 or 21.3 percent from the same quarter in 2019 and $3,000,000 or 4 percent from Q3. Same property NOI for Q4 came in strong relative to last year, increasing 4.6 REIT. And on a constant currency basis, increasing 2.1%. Driven by contractual rent increases, Incremental rent earned from excess land at a GTA NYNA property and rent from an expansion completed at one of our West Jefferson, Ohio properties. Excluding this expansion rent, same property NOI for the quarter is 4.8% and on a constant currency basis 1.6%.
G and A for the quarter was $100,000 lower than the same quarter last year and $1,700,000 lower than Q3. The positive variance relative to Q3 is primarily due to the $1,000,000 severance charge recognized in that quarter. For 2021, based on current run rates, we estimate G and A will come in approximately $8,000,000 per quarter, which includes approximately $1,600,000 of non cash compensation expense, but assumes no fair value losses or gains associated with the increase or decrease in non cash compensation liability, which cannot be predicted. With respect to current income tax, The Q4, current income tax was $1,100,000 which was lower than Q3 by $1,100,000 due to the reversal of the $1,700,000 REIT. Provisions previously mentioned, offset partially by current taxes of $700,000 relating to the gain on the sale of Granite Spanish property in October.
For 2021, our current tax run rate is approximately $2,300,000 per quarter. With respect to the potential recognition of tax assets, Granite will be recognizing $200,000 of tax assets in Q1, therefore reducing its estimated current tax expense for that quarter for this quarter of $2,100,000 for the quarter. Granite has a further potential $2,000,000 of tax assets that may be recognized in Q4 2021 Relating to tax position on taxation years, which will go statute far. But we cannot assess whether these tax REIT. The trust and balance sheet comprising total assets of approximately CAD 6,700,000,000 Lease.
At the end of the year, it was positively impacted by approximately $140,000,000 in fair value gains to Granite's investment property portfolio in the 4th quarter, offset by approximately $116,000,000 of translation losses on Granite's foreign base investment properties, particularly impacted by the decline in the U. S. Dollar of 4.3% relative to the end of Q3. The fair value gain on Granite's investment property portfolio is attributable to fair value gains in the Trust's GTA, U. S.
Properties as well as the Trust's modern distribution warehouse assets in Germany and the Netherlands due to increases in fair market rent assumptions REIT. And declines in capitalization rates, partially offset by fair value reductions in a few of the Trust's Austrian assets. The Trust's overall weighted average CAC rate of 5.6% decreased 20 basis points from the end of Q3. The net leverage as of December 31 was 25%, only slightly higher by 1% from Q3, Following the redemption of Granite's 2021 debentures on January 4th this year, the Trust's current liquidity is approximately $1,100,000,000 representing cash on hand of approximately $580,000,000 and the undrawn operating line of 499,000,000 I will now turn the call over to Kevin. Thank you.
Thanks, Theresa. And as always, I'll keep my comments brief as the trustees have the opportunity to review the MD and A and press release. I'll first echo, Teresa's comments on the quarter. FFO and to a degree, AFFO were impacted by a multitude of factors, both Good and bad, including tax provision reversals, FX losses, same property NOI growth, Increase in the valuation of our deferred units and finally, the impact of the equity and debt offerings in the quarter. All said though, I think we had a very solid finish to a strong year financially in 2020.
Rent collection continues to be strong across our portfolio. We have one rent outstanding as of today related to a small space In Poland, as was the case in Q3, the tenant involved is a very creditworthy tenant that is permitted under the terms of their lease to pay the rents in arrears. As such, we expect to receive the outstanding rent very shortly, at which point we will have collected 100% of rents through February. There are no deferrals being contemplated at this time. On November 17, Related to our equity offering, we announced that we had completed or were in exclusive negotiations on $564,000,000 of acquisitions.
As you can see from our MD and A and press release, we closed on roughly $470,000,000 of acquisitions In the U. S. And the Netherlands in the quarter, including one previously announced acquisition in Atlanta, Georgia for approximately $105,000,000 We are close to completing our remaining acquisition in the U. S. For approximately 90,000,000 which should close in the next week or so.
Our pipeline of acquisition and development opportunities remains Active across our target markets in the GTA, Europe and the U. S. Although I will point out Our team's ability to pursue and execute on acquisition in Europe is impaired by travel restrictions in place, at least in the near term. On the development front, we anticipate spending between $100,000,000 $130,000,000 on new projects and expansions in 2021, Depending on the timing of construction, the new projects in Altstadt, Germany, Dallas, Texas And 2 buildings representing the first phase of our business park in Houston will comprise roughly 1,250,000 square feet of space And generate a development yield upon stabilization of 6.5% to 7%. Construction on our Altback project will commence this month, And we expect construction on our Houston and Dallas projects to commence sometime in the second half of twenty twenty one.
The expansion of our conjugate facility in Mississauga is expected to commence in the Q2, and that expansion will comprise roughly 60,000 feet A new generation cold storage space, and we expect to complete the project in the Q2 of 2022. Development will continue to play a critical role in our growth plans, and we are actively pursuing development opportunities across a number of our target markets. For an update on operations, just over 2,300,000 square feet of leases expired in 2020. We completed roughly $2,200,000 of renewals on new leases on those expiries at an average increase in rental rate of approximately 8%. 2 smaller spaces in Austria and Poland were not released and are currently vacant and available.
Further to my comments on our last call, We released vacant space at 2 of our properties in Memphis and Savannah in the Q4 of 2021. And we finished the year at a very respectable 99.6% occupancy. For 2021, 1,900,000 square feet or roughly 4% of our leasing plan GLA are expected to expire. To date, we have renewed roughly $1,600,000 of those expiries at an average rate increase of 5%. As Theresa mentioned earlier and as disclosed in our MD and A, same property NOI increased by 2.1% on a constant currency basis for the Lease.
Currency basis for the 4th quarter and 3.7% for the year, in line with our expectations. Same property NOI growth for the quarter was muted by vacancies in the U. S. And Austria and a negative CAM adjustment of 300,000 As you may have seen, we issued our 1st green bond use of proceeds report with respect to the allocation of proceeds from our 500,000,000 REIT. Green bond issued in June.
I am very pleased to repeat that we have allocated roughly 69% or 345,000,000 Towards eligible green products projects as defined in our Green Bond framework and verified by Sustainability. The Green Bond Use of Proceeds report can be found on our website. And by virtue of our planned development program, We expect to allocate additional funds towards eligible green projects in 2021 2022. Another notable mention on the ESG front is in partnership with our tenant, Decathlon and Tizon, a leading solar equipment provider in the Netherlands. The installation of a major 10,500 panel rooftop solar array REIT.
This project has been completed at our newly constructed distribution facility in Tilburg, The Netherlands. This project alone is expected to produce over 3,300 megawatt hours of clean energy per year REIT. And reduce CO2 emissions by almost 2,000 tons annually. A similar rooftop solar installation exists at our recently constructed distribution center in Wirt, Netherlands, and we are planning to add a rooftop solar array to our development in Albaq, Germany REIT. We are also actively preparing our 1st annual corporate responsibility report, which we expect to publish in the Q2 of this year, which will outline our ESG objectives and targets for 2021 beyond.
In closing, with over $1,000,000,000 liquidity at Theresa mentioned, we are positioned well financially to execute on our planned development projects and our current pipeline of acquisition opportunities. Also, as Teresa mentioned, Granite recognized over 270,000,000 REIT. Fair value gains on our investment properties in 2020, which is highly reflective of the state and direction of cap rates and pricing REIT. We are observing in our markets for good products. Investment demand for modern logistics real estate has only intensified Since soon after the onset of the pandemic, we anticipate investment demand and leasing fundamentals to remain strong over the next few years.
Accordingly, we will continue to deploy capital on select acquisitions in a disciplined manner as we always have, And we will leverage our platform to incorporate further development and value add activities in our growth strategy in order to drive higher total returns REIT.
Thank your 3 tone prompt to REIT. And we'll get to our first question on the line from Himanshu Gupta with Scotiabank. Go ahead.
Thank you and good morning. So first on the fair value gains, sizable fair value gains were $130,000,000 in the quarter. Just confirming, is that after translation FX losses? And then how much was it U. S.
And how much was it Canada? And have you realized any fair value increases on acquisitions done in the last 2 years?
In terms of the FX, yes, please.
Yes. So, Givenchy, that does not include the translation loss. So in the quarter, we had $115,000,000 translation losses. That is separate from the $143,000,000 of fair value gains.
Okay. And how much of the U. S. Numbers you're seeing there?
I'm going to pull that up and get While you're speaking to Kevin, I'll try and find that for you.
Is there any other questions, Himanshu?
Yes, sure. So I think and then the next question was, I mean, are you realizing any pay value gains on the acquisitions done in the last 1 or 2 years? I mean, are you seeing the acquisitions that you have done recently? Are you already seeing profit compression on those assets?
We are. I mean, our practice typically is not REIT. To recognize a fair value gain in the 1st year, but we have done it because there have been times Chalk Hill was an example in the U. S, Tilburg in the Netherlands would be another example where there has been clearly a move In value, whether it's cap rate or market rents or a combination of both, well, we have recognized the fair value gain in the 1st year. So to answer your question, Yes, we have seen fair value gains definitely on assets that we have acquired in the last 2 years.
Got it. And then can I hear?
Yes, sorry, I can get it. So the U. S. Is about 103,000,000 Canada, dollars 34,000,000 and the remaining $3,000,000 to $5,000,000 is in Europe.
Awesome. Thank you. So it's bulk of it is in U. S. And the next question was on the discount rate on Austria Properties that was slightly increased.
What led to that change?
Those were as you know, we get updated information every quarter from Various brokers. And again, it's just movements in that particular market being a little bit more challenged, a little less transparent than what was And the German, obviously, and the rest of Europe. So it's really just a view from the market just In Austria, in general, just it's been on a decline this year.
And I'll start off to Mike may want to step in and answer this too. But when we look at the Austrian assets, We use appraisals pretty actively as well. And when we change, sometimes the discount rate will change, but the terminal rate will change in the other direction. The market rents will change, but sometimes the individual metrics themselves will move around. Mike, anything you want to add to that?
Yes, I think that's pretty fair, Kev. What I would say is that it really revolves around The type of assets we have in that jurisdiction as well too. It's a lot of our legacy assets are Magna assets. So That's part and parcel of not seeing
the increase we've been seeing in the logistics sector.
Got it. Anyways, it's pretty strong. So thanks for your comments. Then just turning to the leasing activity in the U. S, I think pretty active quarter, almost 400,000 square feet done.
Does that include Savanna Vacancy and Memphis, like boats taken care of now?
That's right.
Okay. And how are the market trends looking in these markets? I mean, are you seeing Any increases over the in place trends over the last years?
Yes. Memphis was, I believe it was 5% to 6%. So that was a relatively minor move. The one in Savannah actually moved Quite a bit. I believe it was just sub-four percent, say around 4 percent, and we did a release in the 5% range.
So that was a much bigger lift in Savanna
REIT. Got it. And I think after this, there's pretty much no vacancy in this portfolio, right? I mean, REIT.
Just Novae, Novae you've had on it. And I just for if no one remembers, Novae is not really a core asset of ours In Novi, Michigan, but it's one that we feel, if we get the remaining vacancy of 90,000 Don, I think that's a significant value add event. So we want to release that space, and then we'll look at What the future of that asset holds in our portfolio, that's the only vacancy we have in the U. S. Currently, yes.
Got it. Okay. And then just checking here to the acquisitions, I'm looking at the Northeast and Pennsylvania After we issued the $200,000,000 the capping is $5,100,000 is that going in or is that stabilized? And what kind of rent escalators do you have?
Yes. We won't go into the individual leases in terms of the rent escalators. We're not really we can't really do that. But it is stabilized. There are free rent periods that are burning up Shortly.
So it's not as though the stabilized rent is in 2022 per se, but there is some short term, What would you say, fixturing period free rent on one of the assets there? So it's on a stabilized basis, so that stabilized rent Will be in place sometime around the middle of 2021, I think.
Got it. And then the property is almost newly constructed And a bunch of your acquisitions last year and previously had been new or almost new as well. Is that your bias To go for newly developed assets? And is that likely to be in the future as well?
Any color? Yes. It's I wouldn't say I know the way it looks. And I've said before, I characterize our portfolio as being made up It just so happens that in the Q4, a lot of our acquisitions were around bond like assets, Brand new assets, long term leases with credit load attempts. And listen, there's nothing wrong with that.
But that wasn't that's not necessarily intent for us REIT. If you look at the Vorschoten assets just north of The Hague or just north of the Port of Rotterdam in The Netherlands, We love the location, and we feel that down the road, it would be a fantastic location for last mile delivery. And so that's an asset that's not brand new, but has upside potential for us. So we're just as excited REIT. To do those types of acquisitions versus these, but at 5.1 and that node, without tenants, without lease term, we felt was
REIT. Got it. Thank you.
Thank you, Kevin, for the color. I'll turn it back.
Thank you very much. We'll get to our next question on the line from the line of Mark Luchat with Canaccord. Go right ahead.
Thanks, and good morning, everyone. Kevin, maybe just talking about the market in the U. S. Generally, you spoke about new development and There is quite a bit of redevelopment coming. To what extent do you see this having a material impact on the pace of rent growth, maybe if you look at later this year and into even next year?
Well, it's hard, Mark, because when we went into 2020, 2020 was supposed to be the 1st year Where new construction or deliveries strongly outpaced absorption. So The U. S. Has averaged between $250,000,000 $300,000,000 of absorption and deliveries have been in the 250 range. So it's been outpacing it for years.
And I think 2019 was the 1st year where you saw a balance between new deliveries and absorption. 2020 was supposed to be between $300,000,000 $350,000,000 of new deliveries and absorption was supposed to be just under $250,000,000 Obviously, we didn't see that. And with COVID, I think there was even more of an expectation of a drop off of demand. But obviously, that didn't happen. We've seen demand pick up.
We continue to see demand pick up. And but new deliveries, Particularly in certain markets of the U. S, we are always going to keep rent growth in balance. I think from our perspective, the way we look at it is if we're in the right location, which we focus very much is What nodes do we want to be in within larger markets? We'd like to also play on the development side as well and add more value there.
What we are seeing is in those markets where development is very active, we're still seeing stabilized assets being traded at 15% to 20 REIT. Percent above where replacement costs are 2 days. Now the expectation may be that rents We'll drive replacement costs up. And so you'll be ahead of the game in terms of replacement costs down the road, 5 to 10 years down the road. But that's what we've seen.
So the expectation is that rent growth will remain very strong across most of the major Distribution markets in the U. S. At least over the next 5 years. And when you talk about replacement costs, you mentioned rent. Is There any expectation from people looking at Nadege Properties in regards to inflation as well impacting that side?
Yes. I think that there is. Yes. You mean for land values in particular? Or just the cost of development?
Yes. I think we're actually seeing that. We've been pursuing land opportunities now for the past Couple of years, and I can tell you anecdotally, we have seen land values rise 50% or higher across multiple markets. Now one of the reasons I've mentioned before that the U. S.
We see as an effective development market for us is that land Values are not certainly not where they are in Canada. In Toronto and Vancouver, certainly, they're a percentage of that. So land value is going up by 50%. Do not have a material that material an impact on your pro form a. But we've seen it, and I don't REIT.
In terms of construction costs, it's hard to say, Mark, because 2020 was such a weird year. We saw increases in construction costs across a number of our markets, but is that due to COVID? Or is that just due to underlying You know, labor and cost dynamics. The cost of steel and the cost of concrete, though, Has risen pretty dramatically. The cost of timber has as well, has nothing really to do with us.
But that's another factor that we're seeing as well. So In short, I expect that inflation to be pretty high and that will continue to drive up replacement costs and put more pressure on rents for sure
Thank you. We'll get our next question on the line from Sam Damiani from TD Securities. Go ahead. Thanks, and good morning, everyone. First question just on cap rates, just given the backing up of bond yields, Kevin, is your team starting to see any impact On the market pricing dynamics given the sudden move in the low curve.
No, I mean,
It's still a pretty short period of time since that's happened, Sam, but absolutely not. And I mean, we're talking about seeing deals in the past 3 days or past days, let alone weeks. No impact whatsoever on pricing. It just feels like pricing is more aggressive today than it was last week, which was more aggressive than the week before. And all the conversations that we're having and the numbers that we're seeing suggest that there is absolutely no softening Of cap rates or the trajectory of cap rates because of the backup in bond yields recently.
Okay. That's helpful.
And just on the acquisition in well, 2 acquisitions in Pennsylvania that were detailed last night, increasing Granite's exposure to that part of the state. Wonder if you could just provide a little bit of color on the rationale for investing this type of pricing in this location.
Yes, happy to. I mean, that location of the I-seventy eight, I-eighty one corridor, it's one of the busiest Tri Core doors probably in the world, if not in North America. And that's a major part Of our strategy, I'm sure it's in one of our investor presentations following our strategic plan approval In November of 2018, it's one of the fastest emerging e commerce distribution markets in the U. S. For all the reasons I've talked about before, proximity to U.
S. Population. This location just outside of Scranton, Where we've seen an awful lot of growth, this node itself is probably north of $20,000,000 by now. Amazon is very good way. We're trying to get a node that's within a 3 hour drive of New York, Philly, within a 5 hour drive of Boston, Washington, D.
C. So these locations are really becoming critical for companies in their distribution chains and their e commerce Lease. And adding to that, just the availability of labor makes these notes very desirable for large tenants. So it's a market We identified years ago as being an important part of our portfolio. And these are great assets at a cap rate north of 5%.
We thought it made a lot of sense for our portfolio, and we thought the timing was right.
That's great. Thank you. I'll turn it back. Thank you very much. We'll take our next question on the line from the line of Joan Chen with BMO.
Go right ahead.
Good morning, everyone. Just really quickly maybe on overall picture for 2021, given that there's very little renewals coming up And your occupancy rate at 99.6%. How should we be thinking about the trends for same property NOI growth For 2021, is this still kind of in that 2% to 3% range?
I think so. I think one of the things that What's on our mind through 2020 as we head into this year, Joanne, is we have a number of CPI Indexed leases. We have a few in the GTA, a few large ones actually in the GTA with Magna, and we have a number Inflation Index Leases in Europe, particularly in the Netherlands. So We feel that that will mute, at least for 2021, same property NOI. But I would characterize it, I would The guidance I would provide today is we expect same property NOI to be in the low-2s to mid-2s in the first half of the year, And we expect it to be in the low to mid-3s in the second half of the year.
So we should average out somewhere in the high-2s to 3 REIT. With increase in same property NOI growth in the second half of the year.
Got it. And maybe sticking with that note, obviously, very strong organic growth in Canada. Could you maybe provide Some color
in terms of which markets you guys are driving a lot of that growth? Yes. For sure, it's true. We've seen decent growth in the U. S.
I mean, 2021, a lot of the churn is in Europe, But we will still see some growth there, but not as much in Canada. We don't have much churn in 2021 in Canada. So Thanks, Ralph. The NOI may not be as strong. 2022, quite a bit of role in the U.
S. I think 70% is in the U. S. So we expect rent increases on average in 2022 to be in the 7% range. So we think 2022 will be a good year.
There will be a lot of noise around the re leasing because we have over 5,000,000 feet rolling In 2022, the direction of the rents is moving in the right way. So I think 2022 will be a good year in terms of rent increases and lead into a decent year of same REIT.
Okay. Got it. And maybe switching to acquisitions. Obviously, it was a very active year we had in 2020. Can we kind of expect I know the negotiations are constantly undergoing, but kind of the same type of scope for 2021.
Well, I think it's an active pipeline. I made the comment of being REIT. Pretty intentionally, markets are all over the place right now. We have grown uncomfortable with Cap rates in a number of our markets, to be honest with you, because we think in some cases, I made the comment just earlier about replacement costs. And I don't fully disagree with the argument that replacement costs only have one way to go.
And so If you have a really good location and you have a new asset and a good tenant, I understand stretching on pricing And the yields to a degree. But in some cases, we've seen what we think is a full detachment from other fundamentals. And so we've grown A little concerned of where pricing is in market. So we're happy to sit back and continue to evaluate REIT. And if that means we do more land and we do less stabilized properties, then so be it.
And that's the direction that we'll go in. The pipeline right now is pretty active. For us, it's just the key is just to remain disciplined in the markets that we want and the assets we want And in terms of pricing, we do agree, we think pricing is going to remain very strong and very competitive for these assets over the next Over the foreseeable future, over the next few years at least. So I think it's part of our DNA to remain REIT. We could be very active in the Q1 or the Q2, But I think we'll just continue to review market conditions and try and make the right decisions.
Right. Okay. Thanks. And maybe this will be a question more so for Theresa, but it looks like in Q4, there was A jump in the property operating costs in terms of the recoverable costs. Could you maybe give a little bit more color on REIT.
So let's go back. What is once in that bucket? Well,
I think the increase, the overall NOI though REIT. So it's really just the new acquisitions coming on board and including their operating costs and then equal recovery Rent. So that's really what's driving it as a new acquisition.
Got it.
Okay. No, I just wanted to clarify that. Okay. That's it from me. I will pass it back to Nikky.
Yes. Our next question is from the line of Matt Kornack. Please go ahead with your question.
Hi, guys. Just with regards to it was asked earlier, and you don't have to speak to the specifics Reit. But you've bought $1,000,000,000 of assets this year with a 10 year weighted average lease term and the market's Talking about inflation increasing. So can you speak to the inflation protection in these longer term leases? I think we've heard that Industrial in particular, you're getting more in the way of either annual rent steps or periodic rent steps.
Can you REIT. Speak to that as well as where the existing portfolio in general sits on sort of embedded organic growth.
Yes, Matt, happy to. I think, if I'm not mistaken, all of the acquisitions this year With leases in place, it involve annual contractual rent increases or periodic rent increases to your point for their CPI or inflation indexed leases. And I think that's important to us. I'm not Maybe not as concerned about inflation as others are. But as we're looking at acquisitions, Particularly long term basis, we are very aware of contractual rent increases and the importance of that.
So Just off the top of my head, I would say it would be on average around 2.5%. Now the CPI ones, I can't Who knows where CPI is going to be in the short term, but I wanted to point out and emphasize the fact that that's a consideration for us. We've looked at a number of assets where The location is great. It fits our investment criteria, but it's a long term lease at 1.5% Annual increases in that, that's what gives us pause. So growth within the lease term It is an important factor, Greg.
Now are you going to get 4% now? And maybe in some markets at some point, and we have on renewal, On certain renewals, we've been able to achieve that. But in the 2% to 3% range, which is very common in the U. S, that's what we've been Certainly, what's been an important standard for us on new acquisitions with long term leases.
And then I guess you don't have many of them this year, the European asset you noted is interesting. But Are you would you entertain looking at some of these things that are exceptionally low going in cap rates, but the rent bumps could be 50% to 100% on some of the assets? Or is that not something A, do you think it's priced appropriately in the market today? And is that something that you'd entertain looking at?
Yes. It's I think the recent acquisitions that we've made in the GTA, I think The tenderly ones. The rent growth is very attractive for us. And what was Attractive for us on an acquisition was the price per square foot. So again, just looking at other fundamentals that made sense to us.
Where we REIT. And as I said before, a 3.5 going in yield might make sense. That's not really On its own, what scares us. It's just if that 3.5% represents $300 a foot, Well, then we have a problem. That's when we have an issue.
So what you're talking about, we absolutely look for And we are willing to get aggressive on cap rate. It's when it starts contrasting with other important fundamentals. Listen, I'm not going to sit here and say prices in Toronto should be $125 a foot. That's gone. I realize that.
And looking at land prices recently, pressing 3,500,000 an acre, Nearly replacement costs are much closer, about 200 a foot than they are 100. I get that. Those are the opportunities that we look at from an aggressive CapEx perspective. It just has to make sense From other fundamentals for us to move forward on it, but it definitely it's on our radar. Yes, we do it.
That absolutely makes sense. And then just a technical question for Teresa on the straight line rent, which I think is Q3 was impacted by some free rent, and I think it's still going to wear off over the first half of 2021. Can you just give us a sense of the step down? Is it around $500,000 a quarter? Or how should we think about that?
I'll probably have to take a closer look, Matt. But you're right, that free rent that we saw in Q3 will be burning off in the Q1, And that's probably in the ballpark, that's 500 ks. But I can get back to you offline.
Okay. No worries. That's perfect. Thanks, guys.
Thank you very much. We'll go to our next question on the line from Howard Leung with Veritas Investment Research. Go ahead.
Good morning. So there's been a lot of talk about rent growth. So I just wanted to ask, Have you done kind of a mark to market analysis of your properties? And is it right to say that I guess the U. S.
Has way better mark to markets than what you see in Europe now.
Well, I would say it's Fair to say because of the Magna concentration in Europe and not that we think that the rents at Magna are much higher than market, But I would just point out that it's harder to determine what's being market rent as in those markets versus logistics in the U. S. There's a lot more transparency around the U. S. And Europe.
But just in general, I would say that you're right. Mark to market on our U. S. Assets is higher than it is in Europe. And I wouldn't look out as much long term, Howard.
I would just I think it's better to focus on what do we anticipate what happened in 2020, what do we anticipate is going to happen in 2021 and what do we anticipate is going to happen 2020. So for 2020, it was roughly 8% mark to market. For 2021, Overall, and there is one asset in there on renewal where an amortization does burn off. So it kind of skews the numbers a bit. But for 2021, we anticipate it being in the 5% range.
And then as I mentioned for 2022, as we sit here today, We expect a mark to market in the 7% range overall for 2022. And I don't think we've looked carefully at 2023 yet. All to say, I think that, that would indicate kind of where we feel the in place rents are versus market. Right.
And 2022, I think you mentioned earlier that it's because there's more U. S.
REIT. Yes. It's 70%. Now interestingly, Lease. In 2022, when you look at the rents themselves, the renewals mostly involve Magna in Europe, and I think it represents over 45% of the rents that are expiring in 2022.
And We do expect rents to move positively on those renewals. So we expect rent lifts to be positive in Europe as well as the U. S, Obviously, as well as Canada, federal overall, we're anticipating this point will be 7%.
I guess I want to turn to kind of in Persuasion. I know it's been pretty recent since these rise in bond yields, but any thoughts as to whether you would maybe do some Financing earlier than anticipated on debentures just to maybe get ahead of the potential for the rising deal.
So Howard, we have been looking at this. So our next maturity, that was in November 2023. So that's almost 2 years 9 months. And you're right, we could refinance right now probably a 10 year In 2% 2.7% range. So lower financing, and You can certainly swap it to something much lower than our current 2023 debenture.
But the prepayment penalty right now is too prohibitive, And it doesn't really make sense to do that now. It's quite significant, and I just would it's too costly To call and interest rates would have to rise or we would have the conviction that interest rates would have to rise significantly in order to make any sense of it. So at this point in time, It doesn't look favorable to refinance of 2023.
Right. That's fair. Definitely, that's going to happen in 2 years' interest rate. Just last one comment on CapEx. I think you mentioned earlier that You're expecting in 2021 to be for CapEx to be around $0.30 that's good for CapEx and leasing.
And I know that's Granite REIT. Granite REIT is higher than what it has been, not just in 2020, but it's been the case before. Is that really a function of, I guess, less mega, more mortgage at fixed So you expect you would expect that to maybe go even a bit higher as the Magna process or so?
That's exactly the case. You're right. So less of a Magna, which is really our quadruple net leases to moving more to traditional properties where we're going to have more Ongoing general maintenance CapEx programs in place. So as we move away As we have fewer and fewer exposure less exposure to the manufacturing quadruple net leases, we should see it Level off. It will probably level off in that $0.30 per square foot range longer term.
Okay. No, that's great. That's very helpful. Thanks so much. I'll hand back.
Thank you. We'll get to our next question on the line from the line of Pammi Bir with RBC Capital Markets. Go ahead. Thanks, Linda. Hi, everyone.
Just Kevin, I want to
maybe go back to your comments about capital allocation. You mentioned that it's getting a little bit uncomfortable with where cap rates are on some transactions.
So So as you think about maybe
the next 12 to 24 months, I'm just curious how you see perhaps your approach to development Changing or maybe increasing some of the capital towards developments? Or is there enough in the pipeline to keep you active such that acquisitions will likely outweigh Development projects over the next few years.
No. It's a great question. I don't think that we have enough. If we are successful, and we believe that we will be, if we are successful on our development projects this year, namely Dallas, Altbach in Germany in the first phase of Houston. After this, we'll just have Houston As an ongoing development site.
And so we wanted to add more development This year, it just so happened that the stabilized acquisitions made more sense for us. But our In 2021, it's to continue to build up our investment sorry, our development pipeline. So It is a focus of ours this year to do it. We have the platform to do that. We built the platform around that capability.
It should be a core competency of ours. So you will see us hopefully really ramp up the development side
REIT. Got it. I guess,
and just coming back to I think you Partially answered one of my questions, really the only question I have left. But you mentioned that I think that roughly 45% of the 2022 maturities are with Magna, whether it's
in U. S. Or Europe.
I'm just curious if you had a sense of I think the total for 2020 REIT. Maybe just over 5,000,000 square feet. What portion of that would be subject to fixed rate renewals?
I think the majority of the Magna renewals are fixed rate renewals. So that 45% of revenue I referred to is Magna in Europe And that is fixed rate renewals.
And so the balance of the 2022 maturities would Not necessarily. They would be at market rates.
They would be at market. Yes. There is, I think, 7% is in the GTA and the remainder is in the U. S.
Okay. And I think you
mentioned that the magnet leases would be likely generating positive REIT. Is there a lot left in the Magna tenanted assets where the rents actually roll down? Or is that have we gone through most of all that in the last
Lease. No, I think you've gone through that. There are Magna leases where they do go to fair market value, But the majority of them have fixed rate formulas in there. I won't go into the details of it. But where you're speaking about rents going down, no, that is not the that is REIT.
Certainly not the majority of the Magna assets moving forward
at all. Great. Yes, that's great. Thanks very much.
I will now turn it back. All right. Thanks.
Thank you very much. And we'll get to our next question on the line from Mike Markidis from Desjardins Bank Capital Markets. Go right ahead.
Thanks, everybody. Just one question for me. Kevin, I was wondering if you could just revisit Where some of the larger legacy maturities are in Austria, which I think you, based on your fair value disclosure or comments, Said it as being a market that's maybe a little bit weaker than the others. Where those the timing of that is and just revisit what your thoughts are in terms of REIT. I'll start with the last As per the question, Mike, I think the best thing to do is wait.
We have 2 larger ones coming up in Austria. At the end of 2022 Leit. It's one asset in Austria. The other one is Grox in 2024, and We'll have renewed that in 2023. That's the notice period there.
So those are the 2 big ones in Austria. And Our approach to this hasn't changed at all. We obviously monitor to the degree that we can Lease. And we continue to be encouraged By contracts that they're taking on, partnerships that they're forming, including with Fisker, which will require, in our opinion, which will require Graz To a large degree, so our comfort around the likelihood of renewal continues to grow. I don't think it would make economic sense for us to try and do an early renewal.
The renewal terms are prescribed, and I think the best thing to do is to wait until the renewal date is here, The notice period is here and finalize that and then assess what the best REIT. Move forward is with those assets in the year. Okay. And just to confirm, the one that's at the end of 'twenty two, presumably that's part of 45% of 2022 maturities with Magna, and that would break into your 7% overall expectation for
REIT. Okay, that's it.
Thank you very much. Yes, congrats on the strong year.
Thank you
very much. I'm sorry, I have no further questions on the line. I'll turn it back to you.
All right. Well, just on behalf of management and trustees Hi, Granite. Thanks again for joining us for the Q4 2020 year end call. And as always, to our unitholders, Thank you for your continued faith and support.
Thank you very much, and thank you, everyone. And now this concludes the conference call
for today. We thank you
for your participation. Please disconnect your lines. Have a good day, everyone.