Good morning, ladies and gentlemen, welcome to the conference call of Granite REIT. Speaking to you on the call this morning is Kevan Gorrie, 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 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, as well as potential impact of COVID-19, 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, 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 2020, filed on March 4, 2020. 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 Q3 2020 condensed combined unaudited financial results and management's discussion and analysis of Granite Real Estate Investment Trust and Granite REIT Inc, and other materials filed with Canadian securities administrators and U.S. Securities and Exchange Commission from time to time for additional relevant information. I will now turn the call over to Kevan Gorrie.
Thank you, operator. Thank you, everyone, for taking the time to join us for our Q3 earnings call. I hope you're all doing well. As usual, I am pleased to be joined this morning by Teresa Neto, our CFO, Lorne Kumer, our Executive Vice President of Real Estate, and Michael Ramparas, our Senior Vice President, Global Real Estate and Head of Investments. For our call this morning, Teresa will begin our discussion with a review of our financial highlights. Then, I will provide an update on our operations, acquisitions, development, and ESG. Then, open up the call to any questions that you may have. Teresa?
Thanks, Kevan, good morning, everyone. Granite's third quarter delivered solid financial results with a continuation of strong same property NOI and FFO, AFFO per unit growth relative to prior year. FFO per unit in Q3 was CAD 0.96, a CAD 0.03 or 3% increase relative to prior year and CAD 0.01 lower than Q2 2020. Included in this quarter's FFO is a severance charge of CAD 1.1 million related to the departure of a senior management member. Excluding this severance item, FFO per unit would be CAD 0.98 on a more comparable basis. Further, we continue to realize fair value losses related to the revaluation of trustee deferred stapled unit liabilities due to the increase in Granite's unit price, which negatively impacted the third quarter with a half a million CAD expense or close to CAD 0.01 of FFO per unit.
FFO this quarter has been positively impacted by strong same property NOI growth but was partially offset by net negative foreign exchange translation of our foreign-based income, representing over 85% of our FFO as the U.S. dollar weakened by 3.9% while the euro strengthened 2% on average in Q3 relative to Q2. Part of this foreign currency translation loss was mitigated through Granite's hedging program, which utilizes derivatives that protects Granite against significant declines of both U.S. dollar and euro. The settlement of such foreign exchange derivatives resulted in approximately CAD 0.3 million in net foreign exchange gains realized in the third quarter, partially offsetting the translation losses.
In addition, FFO per unit this quarter continued to be impacted by the temporary dilutive impact of the CAD 289 million equity offering completed late in the second quarter, where the net proceeds have not yet been fully deployed, and the higher interest rate expense from the CAD 500 million green bond also issued in June. Granite's AFFO on a per unit basis in Q3 was CAD 0.91, which is CAD 0.01 or 1% higher than prior year, but CAD 0.02 lower than Q2. Excluding this impact of the severance expense previously mentioned, AFFO per unit on a more comparable basis for Q3 is CAD 0.93, essentially flat to Q2.
AFFO-related capital expenditures, leasing costs, and tenant incentives incurred in this quarter were light at CAD 0.8 million, which was lower than CAD 1.6 million incurred in the same quarter last year and lower than the CAD 2 million incurred in Q2. For the fourth quarter, we are estimating total maintenance, capital expenditures, leasing commissions, and tenant allowances of approximately CAD 2 million-CAD 2.5 million for a total year estimate of about CAD 5.9 million-CAD 6.5 million. This year's maintenance CapEx came in lighter than expected due to the delay of certain projects of the spring and summer months and is not reflective of forward maintenance CapEx trends.
We are expecting maintenance CapEx, tenant allowance, and leasing costs to increase in 2021 to approximately CAD 15 million or about CAD 0.30 per sq f t. AFFO also continues to be impacted by the temporary dilutive impact of the June equity and bond offerings mentioned earlier as well. As a result of a relatively low CapEx quarter and strong FFO performance, the AFFO payout ratio came in at 80% in the third quarter.
NOI on a cash basis for the quarter increased to CAD 14.2 million or 23.5% from the same quarter last year, and by CAD 3.5 million or close to 5% from Q2. Same property NOI for Q3 came in very strong relative to Q3 last year, increasing 6%, and on a constant currency basis, increased 3%, driven by occupancy gains in the GTA, New Jersey, and Oregon, contractual rent increases, and rent from an expansion completed at one of our West Jefferson, Ohio properties. Excluding the expansion rent, same property NOI for the quarter is 5.4%, and on a constant currency basis, 2.4%. G&A for the quarter was CAD 2.7 million higher than the same quarter last year and CAD 0.6 million higher than Q2.
The variance to last year is primarily due to the CAD 1.1 million severance charge mentioned earlier and CAD 1 million in higher fair value losses recognized related to unit-based compensation liabilities due to, again, an increase in Granite's unit price this quarter. For the fourth quarter, we estimate G&A will come in approximately CAD 7.5 million-CAD 8 million, which includes approximately CAD 1.6 million of non-cash compensation expense, but again assumes no fair value losses or gains associated with the increase or decrease in our compensation liabilities, which we cannot predict. With respect to current income tax, for Q3 2020, current income tax was CAD 2.2 million, up slightly about CAD 0.1 million from Q2 due to the foreign exchange impact on euro-based current taxes. Current tax for Q4 should be consistent with Q3, excluding any current tax expected to be realized on the sale of the Spain asset.
As mentioned on the first quarter earnings call, we have another potential reversal of CAD 1.7 million of tax provisions in the fourth quarter but cannot assess whether these tax assets can be realized at this time. The Trust balance sheet, comprising total assets of approximately CAD 5.9 billion at the end of the third quarter, was positively impacted by approximately CAD 52 million in fair value gains to Granite's investment property portfolio, offset by approximately CAD 19 million in translation losses on Granite's foreign-based investment properties, where the U.S. dollar weakness exceeded the impact of the strength in the euro.
The fair value gain of Granite's investment property portfolio is attributable to fair value gains in the trust's GTA and U.S. properties, as well as the trust's modern distribution warehouse assets in Germany due to increases in fair market rent assumptions 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 cap rate of 5.8% decreased 20 basis points from the end of Q2. Total net leverage at September 30th was 24%, only slightly higher by 1% from Q2, and the trust's current liquidity is approximately CAD 1 billion, representing cash on hand of about CAD 540 million and the undrawn operating line of CAD 499. Pro forma the announced Atlanta acquisition, liquidity is estimated to be just over CAD 900 million. I will now turn the call over to Kevan. Thank you.
Thanks, Teresa. As always, I'll keep my comments brief as I trust you've had an opportunity to review our MD&A and press release. I'll first echo Teresa's comments on our quarter. Our FFO and AFFO were impacted by the dilution from the equity offering in June and partially offset by lower CapEx. Overall, a very solid quarter operationally. Rent collection continues to be very strong across our portfolio. The only comment I would make, it's probably unnecessary, we only have one rent outstanding as of today related to a small space in Poland. The tenant is a very large, global creditworthy tenant that is permitted under this particular lease to pay their rent in arrears. So, we expect the rent for October to be collected any time now. We are effectively 100% collected through October.
That's a testament, again, to the quality of our tenants and our team involved in rent collection. In the quarter, we closed on three previously announced acquisitions in Columbus and the Netherlands, and we closed, as mentioned, on three smaller acquisitions in the GTA. As outlined in our press release and MD&A, we are now firm on the acquisition of the 1 million square foot newly constructed distribution facility in Atlanta for roughly CAD 107 million. The facility is 100% leased to PVH Corp with a remaining lease term of approximately 15 years and serves as a primary distribution and e-commerce facility for the U.S. East Coast.
The pace of our acquisitions to date has admittedly been slower than expected, but frankly, that has been more a factor of the swift increase in pricing for good assets in our target markets during the second and third quarters than a lack of opportunities. At this time, I would characterize our acquisition pipeline as being very active, and we expect to commit a good portion at least of our cash on hand by the end of the year. On the development front, as outlined in our press release and MD&A, our development in Bleiswijk, Netherlands, was completed as scheduled on September 1st, and the tenant, Ahold Delhaize, a global food retailer, has expedited their fit-out of the space to meet significant grocery e-commerce demand, and they have already begun to operate out of the facility months ahead of schedule.
Site work is now substantially complete on our Houston development, and we continue to evaluate market conditions for potential commencement of construction of the first two buildings in 2021. We should have more information on this in the fourth quarter call. We have now repriced our development project in Altbach, Germany, and expect to commence construction of the 300,000 sq ft building in the first quarter of next year. We have also submitted for site plan approval on our 600,000 sq ft Village Creek development in Fort Worth, Texas, and expect to commence construction in the second quarter of 2021.
Finally, we are finalizing the scope still of the planned expansion of the Congebec facility at 2095 Logistics Drive in Mississauga, and subject to final building permit, we now expect to commence construction into the second quarter of 2021. From a leasing perspective, 2.4 million square feet of leases were scheduled to expire in 2020. To date, we have negotiated extensions on new leases on roughly 2.1 million square feet at an average increase in rental rate of approximately 7.5%.
The remaining 250,000 ft of expiries in 2020 are not expected to renew, and the spaces in Europe and the U.S. are currently being marketed for lease. Of the 626,000 sq ft of current vacancy, we are finalizing terms on a new lease for roughly 300,000 sq ft in Memphis, and as a result, we expect our occupancy at year-end to be in line with this quarter. For 2021, 1.9 million square feet or roughly 4% of our leases by GLA are scheduled to expire, and to date, we have renewed roughly 1.3 million square feet of those expiries at an average rate increase of roughly 3%. As Teresa mentioned earlier, and as disclosed in our MD&A, same property NOI increased by 3% on a constant currency basis and 2.4% excluding expansions, in line with our expectations for the quarter and year- to- date.
At this point, we expect same property NOI for the fourth quarter to be in line with this quarter. At this time, I would like to provide an update on the use of funds for our CAD 500 million green bond, which we completed in June. To date, we estimate that we have completed or committed roughly CAD 350 million in qualifying green projects, comprised mostly of certified green buildings. By virtue of our planned development program, we expect to add approximately CAD 100 million in qualifying projects to that total in 2021. So, we are making excellent progress on the application of the green bond proceeds, which should also enable Granite to issue green bonds in future.
With respect to the distribution increase, as I've stated in the past, our objective at Granite is to put ourselves in a right position to be able to increase distributions and maintain a conservative payout ratio. Notwithstanding the potential risks associated with COVID and related restrictions, which were considered, the board agreed that an increase in the targeted annual distribution for 2021 to CAD 3 was appropriate, and that we can continue to maintain that balance of higher distributions and a conservative payout ratio. On that note, I will now open up the floor for any questions.
Thank you. If you'd like to register a question, please press the one followed by the four on you telephone. You will hear three, prompt to acknowledge your request. If your question has been answered and you'd like to withdraw things, press the one followed by three. One moment. Our first question comes from Chris Couprie with CIBC. Please go ahead.
Good morning. Just given the fact that you have very limited lease expirations this year and next, any commentary at all on what organic growth may look like in 2021?
Yes. Thanks, Chris. A 2021, it's still early for rents, but we expect it will be in the 2.5%-3% range for 2021.
And that's—
On average. That is on average per quarter for next year.
Okay. That's 2.5% excluding expansions, 3% with?
Mmm. Yes.
Okay. Just on the Series 2 debentures that are maturing next year, any kind of early thoughts on refinancing plans there and what type of rate you think you might be able to achieve relative to the existing swap rate?
Chris, yes, that is on our mind, and we're watching timing on that. Again, you know, we're careful as far as the prepayment penalty. It is something we'll be looking at early in the first quarter. Right now, the bond markets are quite favorable, refinancing that, each is on a Canadian coupon. A 10-year, we could be in the 2.5% range, seven-year around 2%. Swapping that would be lower in around 1.5% if we go 10 years. About a 1% lower than what we currently have it swapped in right now for the 2021.
Okay, great. Thanks very much.
Thank you. The next question comes from Sam Damiani with TD Securities. Please go ahead.
Thanks, good morning, everyone. Do you want to start off with your comment, Kevan, about the valuations in the sector accelerating during the second and third quarters. Could you maybe provide a little bit of color on sort of the dynamics of some of your negotiations that were going on? Did the vendors kind of pull the properties back off the market in hoping to get sort of higher prices later on? Is there re-trading going on? What's happening real time, I guess, in your acquisition pursuits?
Well, Sam, I'll speak more to the second quarter than the third. In the second quarter, there was certainly a downturn. Depending on the market, it was brief to briefer. You saw the three acquisitions that we announced in the GTA. To us, I'll speak to those acquisitions kind of lead into market condition, but during that time, we saw a number of opportunities that crossed our radar in the GTA. We liked these opportunities because they were really good locations. They had a good growth profile. And we felt that pricing was impacted by COVID. On a per square foot basis, cost replacement, we felt comfortable. In the U.S., it was a different story. The investment market fundamentals to a degree, particularly the investment market snapped back much faster.
There were new entrants and pricing competition was higher across our target markets anyways. It wasn't so much that vendors were pulling assets. I think that the volume of opportunities continued to grow later in the second quarter and into the third. It's just that pricing had gone up, in our minds, quite considerably, and cap rates had fallen. You're seeing that in terms of our IFRS values, but we certainly were seeing that in the markets. We potentially mistakenly thought that there would be more value opportunities out there as a result of COVID. There was just too much capital chasing good products, good industrial product in our target markets, and pricing became much more competitive much faster than we expected.
That's helpful. Is it fair to assume that Granite may have pulled back a little bit on some negotiations and just to sort of take a bit of a pause and see where things sat? I think the commentary last quarter was that you hope to have the bulk of the liquidity deployed by year-end.
Well, I think that's fair, but I think it just validated our strategy the whole time. If there is a large portfolio or even a large asset and it's fully marketed, it can get very competitive. All it takes is for one group to want to place capital quickly, and it can move the market for that asset. Where I think we're having success most recently is we continue to have access to off-market deals. I think the comments I made about our pace of acquisition in the fourth quarter is accurate. We are in active discussions on a few strategic opportunities, and I think that we'll get those done.
It just, again, reminds us where there are modern assets or portfolios that are fully marketed, we're just probably not going to have success taking a lot of those down just because of where pricing tends to end up in this market.
Helpful. Thank you. Just switching over to, I guess, the comment on the 250,000 sq ft of roll in the fourth quarter that you do not expect to renew. I guess there was a vacancy in Austria in the third quarter. Are the bulk of these Magna facilities by chance?
No, they're not. Actually, the 250,000 sq ft includes the vacancy in Austria that you mentioned. That's one, and then the other one's in Savannah. That one was not Magna. We are looking to renew that space in Austria to a new tenant. The one in Savannah, we're pretty confident on in terms of the re-lease ability. We were in discussions with a prospect. I'm not sure where we are in that. We don't expect that vacancy to last a long time. That's the two that I was referring to, the 250,000 sq ft in total.
I guess the Austria asset is a piece of a larger building that Magna's got a partial occupancy of? Or is it a single tenant?
Yeah. Magna is one of the tenants, and this vacancy is not related to Magna. This was another tenant.
Understood. Thank you very much.
Thank you. Our next question comes from Howard Leung with Veritas Investment Research. Please go ahead.
Thanks. I want to return back to that question about acquisitions. Kevan, you mentioned, you point out some of the sale-leasebacks that were done this quarter. Were they off-market deals? Do you see more sale-leasebacks in the near future or in the pipeline as maybe some owners also need capital because of COVID recession?
Well, generally, I do expect to see sale-leaseback opportunities increase to your point. It is very important for us and for all owners looking at these opportunities to make sure you're underwriting the tenant in the space very carefully, which we do. We do expect to see more. Of the ones that we announced, there were two that I would characterize as off-market or very selectively marketed, and there was one that was more broadly marketed. Frankly, I think that the one that was more broadly marketed was probably the best pricing just because of the timing. It was so early on in April in COVID that we felt pricing was obviously impacted significantly by the conditions around COVID and the concerns. That provided us the opportunity to add this to our portfolio at a good price.
Thanks. That's helpful. Just want to turn to the leasing vacancies. I think in the U.S. portfolio, there was a vacancy in the year, 402,000 square feet. I think you mentioned that you're in discussions to lease something in Memphis. Is the Memphis the bulk of the vacancy in the year?
That's right. There's two. There is one in Novi, Michigan. Just to make a point to Teresa's on the CapEx for next year, that's accurate, but that does include about a quarter of that's related to our Novi, Michigan asset, which is effectively an office asset. It's a legacy asset. It's not a core asset of ours, but we do think that there's value to be had by re-leasing that space and then looking to sell, but there is CapEx associated with that. It makes up almost a quarter of our expected spend next year. That's 90,000 ft and the remainder 312,000 sq ft is Memphis, and that's the one that I was referring to in terms of negotiating a lease on that space.
Okay. No, that's great. That's good color. Just a question on your weighted average lease terms. I guess we've kind of seen it tick down a bit. I think maybe that's a side effect of selling some of the Magna properties. It's below six years now. You know, how does that kind of relate with your view on any potential long-term recession effects from COVID? I guess, does that mean that you think that it might not last much longer, and you're not too worried about the kind of lease term shortening?
Well, it's a good question. I think a big part of it, Bill, was the portfolios we added in the Midwest, in Memphis. Those were shorter, and we liked the markets, we liked the quality of the assets, and we felt that they provided strong growth potential. We were willing for the average weighted lease term to go down to capture some growth because we believe in the quality of those assets and the location. That being said, we're mindful of the lease term in the current environment in which we're in. As you can see, I felt like we paid market for the PVH asset because that provides good credit and a long term on a large asset that's brand new in the Atlanta market.
I would just put it this way, where we feel we can capture growth and we have confidence in the market and in the asset, we're willing to take a shorter lease term. At the same time, we are mindful of the overall weighted average remaining lease term, and to us, stability is a very important consideration. I'll make that point. I think because of PVH and other acquisition opportunities we're looking at, I do expect that weighted average lease term to tick up slightly in the coming quarters. The point I would make is we're mindful of it, particularly in the current environment in which we're in.
For sure. Yeah. There's kind of a need to balance both sides. Just maybe another one. I kind of saw contractual adjustments. They seem to improve as a percentage of base rents. I guess with the number, I think some of the acquisitions you're announcing that they also have contractual adjustments or step-ups in there as well. Do you expect to see that being a stronger contributor to organic growth, or is it just kind of be similar to what we've seen in fiscal 2020?
Well, I think we have seen it contribute to our organic growth, and I think we'll continue to. Again, like the weighted average lease term, the growth in the contractual rents is important to us. It is a consideration. If there is an asset we really like and it's flat rent for seven years, what we're willing to pay for that asset matters. All of the acquisitions we've announced have contractual rent escalations, and we expect to see that on the vast majority of acquisitions that we make, and certainly any lease deal we're involved with, it's a very important consideration. You mentioned COVID hit . I think at one point, the expectation on the annual rent escalation was getting quite high. Whether that moderates somewhat in this environment would be a fair question, I think.
But rent escalations are an important consideration for us anytime we make an acquisition or make any leasing decisions.
Right. Just on that, the rent escalations, are you signing more fixed rent escalations these days, or is it still linked to CPI? What's the mix right now between the rent escalations? How much is it linked to inflation? How much is fixed?
The vast majority are fixed rent escalations, and that's a North American thing. We have CPI indexed in our acquisitions and developments in the Netherlands, and that's typical in the Netherlands, and you see that very much in Germany. In North America, it's much less common, although we do have a number of Magna assets that are CPI indexed, including Modatek and Karmax, two large assets in Milton. Those are CPI indexed. Overall, of our 100+ properties, the majority are fixed annual increases.
Okay, great. I guess because you've been able to renew leases, there hasn't been any kind of pushback during COVID about these kind of fixed escalations?
No. In terms of existing tenants, no.
Okay. That's great.
To be fair, I should say to date, that has not been a focus, in our portfolio anyways.
Okay. Yeah, no, that's great. Thanks. I think I'll turn it back.
No problem.
Thank you. The next question comes from the line of Matt Kornack with National Bank Financial. Please go ahead.
Good morning, guys. Just a follow-up to Howard's questioning there on lease term and stability versus rent increases, are your competitors or the market more generally pricing lease term and stability differently than mark-to-market potential? Is it market specific or generally, are there any trends there?
Yeah, I think that's fair. I think, when you're in a really strong market, tenant credit tends not to matter. We saw that, I think, in the fourth quarter of 2019, and frankly, the first quarter of 2020. COVID hit, all of a sudden, tenant credit matters. It was always an important part of our underwriting, and I can assure you of that. I think when you look at our rent collection, it's hard to say that as we've acquired and developed so much that it hasn't been part of our DNA and our modus operandi. It has become of greater interest to buyers. We've seen that. I'm not sure I can quantify how much that is.
We have seen deals with, to me, very low CAGR on medium to long-term leases with credit that have gone for prices that have really surprised us. That would suggest to me that tenant credit in today's market matters more than it did 9-12 months ago.
That makes sense. With regards to the PVH acquisition, was there a rent step provided in any of the disclosure? Can you provide that?
We didn't. No. We have to be careful, Matt, under the terms of the lease, what we disclose, but it does have annual rent escalations.
Okay. Fair enough. Teresa, on straight-line rent, I apologize if I missed it in your comments. The uptick in this quarter, what would that have related to, and how should we think of it going forward?
I didn't mention it, yeah, there were two assets. The Old Pointe development, which came online on June 15th, last quarter. That does have free rent up till November. That will wear off in Q4. The Tilburg asset in the Netherlands, which we closed in on July 1st, that will have free rent until next year. We'll be cash producing in next year. That's where that uptick is coming from.
Okay. In terms of the quantum that we should expect sort of in Q4 and then what it would go to into next year, can you provide that?
If you don't mind, can I get back to you on that?
Yeah. Offline's fine. Sure. Absolutely.
Yeah. Great.
That's it for me. Thanks, guys.
Thank you. The next question comes from Fred Blondeau with Investment Alliance Securities . Please go ahead.
Thanks, and good morning. I'll be quick. I was wondering if you could give us a bit of color on the strong same store NOI growth in Canada this quarter. What would be the drivers?
I think we had.
Yeah.
Yeah, there were a few. There was some leasing done last year, Fred, that contributed pretty heavily, including Tesma in Vaughan, which was re-leased to Amazon. That was a contributor. We had a rent increase in our Claireville asset with Magna, which kicked in, I believe, in the second quarter of this year or actually maybe it was July 1st. There were a few assets that contributed quite a bit in the quarter.
Well, is it fair to say that it was somewhat abnormal type of growth, or type of growth you would expect for the next two quarters or something?
I think it will go down a bit in the GTA in terms of, I mean, we have one that we expect to come up in the fourth quarter, and we have Tesma, the same property NOI growth where we expect that to go down and moderate in the fourth quarter. I think it will be lower in the fourth quarter. Still positive, obviously. Lower in the fourth quarter as well. I think it's fair to say it will moderate in the fourth quarter moving forward.
That's great. Second, just on the disposition of these Magna facilities in September and October, could you remind us what would be your ultimate target exposure to Magna and your expected timeline from here?
I think we said at the end of this year, we expected to be around 35% and hope to be below 35%. And again, I will emphasize that we're very fortunate to have Magna as a major tenant during a period of time like this. They've been very professional through this. They haven't missed rent. As Lorne always reminds me, they didn't miss any rent in 2008 and 2009 as well. They provided that stable cash flow that we thought that they would. Just to repeat, they are non-core assets obviously that don't fit in with our investment criteria today. We want to or expect to get under 35% this year. For next year, probably somewhere below 30% would be a target. Just to say, to remind everyone, a lot of our portfolio with Magna is in the GTA.
Say, somewhere between 15% and 17% of our total portfolio is in the GTA. Those could be long-term holds just by virtue of the location and where we think, you know, land values are. Then in Austria, again, these are all mission-critical facilities with Magna. And we feel that there continues to be the opportunity to add value through lease extensions, et cetera. There will be a time where we will look at a possible disposition of those assets. We can afford, we believe, to be patient with that. I don't want to look longer term, Fred, than maybe 2021. Hopefully, that helps.
No, absolutely. Lastly, what would be the profile of the buyers of [inaudible] ?
Definitely, I think we've seen this isn't just a 2020 thing, but I think it's accelerated in 2020. What we've seen in the past couple of years is private equity buyers have been interested in long-term leases with good covenants. We've seen those buyers get more aggressive each year, and I think COVID has probably accelerated that. I wouldn't say anything specific, but definitely what we have seen is an increase in interest with facilities related to good credit with term. I think that's kind of where the world is going in terms of cash flow stability. It's becoming more valuable to investors than maybe it was two or three years ago.
No, that's great. Thank you. I'll leave it there.
Thank you. Our next question comes from Joanne Chen with BMO Capital Markets. Please go ahead.
Hi. Thank you. Good morning, Kevan and Teresa . Just had a couple of quick ones real quick. Just given the strength of the rent collection obviously to date and the previous discussion with regards to ongoing rent escalation, you did say that, you know, Q4 is probably trending the same direction as Q3. Perhaps would you give us a little bit of color in terms of what you're thinking in terms of for the next year? Do you expect the same kind of momentum to carry through from 2020 into 2021?
In terms of leasing, do you mean, or organic growth?
Sorry, in terms of organic growth.
Yeah, I think the question was asked too. We think we guided this year to 3%-4%, 3% without expansions, 4% with expansions. We think next year will probably be a percent or maybe a little less below that because we have less roll in the GTA that happened in 2018, 2019, into 2020 than we do for next year. Slightly lower than this year in terms of organic growth. In terms of occupancy, you know, pending what happens, we expect occupancy to remain relatively stable from where it is today into 2021.
Okay, great. I guess just shifting gears to what we were saying in terms of the deployment of your existing liquidity on your end, would it be kind of a balance between you know, development or stabilized assets given your previous discussion with regards to the kind of pricing environment that you're seeing right now? Maybe perhaps if you could elaborate on whether there are certain geographies where you're more focused on at this point.
In terms of stabilized versus development, you know, the three assets we announced anyways in the GTA we see as real value add and providing a little bit better growth for us. As we look forward to the fourth quarter, right now what's in our pipeline is more stabilized assets than, say, value add, although one I would possibly characterize as a combination of core and value add. We don't have any development land currently in our immediate pipeline, and we have, you know, somewhere between probably CAD 100 million -CAD 140 million next year planned for development. Would we look at new development opportunities? Absolutely. In terms of the markets, we do expect to continue to be busy in our target markets in the U.S. and in Europe. Obviously, there are restrictions now on travel in Europe.
There could be restrictions on travel in the U.S., which could impair the team's ability to pursue acquisitions in certain markets. We will see, but we do expect to have a pretty active year in 2021 in terms of acquisitions. I would say we do want to add more development land to our portfolio in 2021.
Okay, great. I guess maybe just really quickly on that development front, with respect to the Altbach development. What sort of tenant are you looking at for that property?
Well, when we did the first go around before COVID hit, we were in discussions. There are some dominant, I don't need to mention names, but there are some dominant companies in the Stuttgart area that were in discussions and looking at that asset. There was also a global e-commerce provider that was looking at that asset, and there was also a food distributor. It's very broad. It's kind of across all uses. In terms of who we're targeting, we're not really targeting anyone. I think we build the best generic box we can, and we want to make sure that it could be used for e-commerce, it could be used for last stop or last mile, or it could be used for conventional distribution. What we're not building is a manufacturing building, that's for sure. We're not exactly targeting a tenant.
We're just trying to build the best distribution logistics facility, and then we'll see. The market will decide what the best tenancy is for that space.
Okay, great. Maybe just one last one for me, and perhaps putting the fix [inaudible] hat on. Given how attractive the financing environment is the thought still for Granite to maintain your leverage around that seven times range?
Yeah, Joanne, we definitely are committed to keeping it in and around that level. Right now, on a debt to EBITDA, we're obviously closer to five, but our target is around the 6.5x to say 7x .
We are still committed to doing that.
Okay, great. That's it from me. I'll turn it back.
Thank you. Our next question comes from Himanshu Gupta, Scotiabank. Please go ahead.
Thank you, and good morning. Just a follow-up on the Magna dispositions, two properties in Ontario and one in Spain. What was the lease term left on these properties? Are there any more Magna dispositions in the near term you're working on, especially given that you mentioned that the private equity capital is available for these type of Magna properties?
There's a few things because of these assets. They were all less than five years, and these particular assets, the tenant, Magna, has a five-year renewal option, so you'll never have more than five years on those. What was the second question, Himanshu?
Are you working on any more Magna dispositions in the near term? I mean, looks like the capital is available for these kind of assets in the market.
Well, we're working on nothing in the near term. We expect in 2021, in terms of dispositions, to be near the CAD 50 million mark in total. That's what we expect in 2021, and beyond what we've announced, we don't have anything immediate in terms of dispositions.
Got it. And then, just turning on the acquisitions. In the GTA, you made three small acquisitions. Are you looking to buy, you know, only one by one or are you willing to do some portfolio acquisitions as well? In general, how is the acquisition pipeline in the GTA?
Well, it continues to be quiet in the GTA. There's just everyone that owns good assets in the GTA wants to hang on to those assets in the GTA. There isn't a lot of velocity or volume there. Your question about portfolios, we're always happy to look at a portfolio, but I will remind everyone that it is our experience, particularly in Canada, that portfolios attract higher pricing. Typically have assets in the portfolio that we don't necessarily want. We've just had more success looking at smaller portfolios or single assets because we can evaluate better if they meet our investment criteria or not. We're open to it, but we are mindful of the quality of the assets within the portfolio and the pricing of the portfolio. So far, we've had more success, in our minds, pursuing single asset acquisitions rather than portfolios.
Yeah. What kind of portfolio premium do you think, you know, these portfolios will require to be traded in a sense that—
It's hard to.
like the value is quite strong?
I think it would be fair. It's hard to point to any real data set in Canada because if you're seeing a portfolio, it could be small bay, industrial, tertiary market, so it's really hard to point to. In some ways, you could say that there's a discount. If you're saying it's going to be a portfolio of 1 million square feet and it's modern product, that's a different story. I think 25 basis points would be very fair. We do see more of those deals in the U.S., and the larger the portfolio, the higher the premium. That may be because the larger the portfolio, the better the quality. Again, you will still end up with 20%-30% of the portfolio that's not as high quality of the others, and it could be in markets that are not in your target market set.
We've definitely seen at least 25 basis point premiums on those types of portfolios. Probably best for us, for our shareholders, not for us to spend too much time looking at those opportunities.
Absolutely. Now just turn your attention to the Atlanta property you bought, 1 million square feet, 4.4% cap rate. Pricing looks strong. How much do you think the market has moved since the beginning of the year? And what is the investment case here? I mean, are you also baking in any intensification potential as the property is situated on a very large piece of land?
Yeah. One, I think you mentioned a couple of things. One is Atlanta has been on our radar for a while. We think it is a very important logistics market. There is a lot of supply, but demand to date has continued to keep up with it, and we think with the continued emergence of the Savannah ports, you know we like the Savannah market. We think Atlanta land is going to continue to be a very strong critical distribution market for the U.S., particularly the East Coast of the U.S.. We like that market. This asset is a fully conditioned asset, which I think gives it advantages in the market. It is a long-term lease with a creditworthy tenant. For us, it made sense. There are rent escalations, as I mentioned.
There is decent growth out of this asset for the next number of years. It was a good fit for us. It's a good e ntrance into the Atlanta market, and we don't believe that we're done in the Atlanta market. We want to continue to find opportunities and grow our footprint in that market.
Got it. Then just on developments, especially, the acquisition market so strong in the U.S., we just saw Atlanta. How is the development shaping up in Dallas and Houston? Especially, the pricing has moved, would you accelerate the development there on both of those projects?
I think just a further point to start on Atlanta, we've been asked this question recently. It feels like there has been strong to very strong cap rate compression across most of the U.S. markets. We've certainly seen it very strong in our Midwest markets like Louisville, Cincinnati, et cetera. The core markets or the tier 1 markets like L.A. and Miami, there has probably been cap rate compression, but what we've seen is the very large secondary markets, the compression has brought those cap rates closer to L.A. in our view. Atlanta has been one of those markets. It would typically have been for newer product in the high 4% cap range. It's certainly now in the low 4% cap range, and we have seen 4% flat deals in Atlanta for the right product. Cap rates have compressed more in Atlanta, Louisville.
Dallas continues to fall than maybe some markets like L.A. That's something we've observed. The developments that we have, I would say Dallas, we are very comfortable in that location. You know, it's a seven-minute drive from downtown Fort Worth. We're very comfortable moving ahead with spec, that will be the plan once we get approval to move ahead with that 600,000 sq ft facility. Houston, long-term, we still really like that market, Houston has been hit not only by COVID but by oil prices. We certainly observe that there has been more softness in Houston than our other markets. We prep the site. The plan is to wait until the new year, evaluate the market, and decide when to go. It's a tale of two cities, to be honest with you.
We do expect conditions to improve in Houston probably by the second half of the year and maybe move ahead. As of now, we're going to continue to evaluate that market before making the go decision on Houston. Dallas, for sure, we'll go as soon as we are able to go.
Got you. You mentioned in your comments something about the gateway markets like L.A. Are you willing to look at that market if you get something in the similar pricing like Atlanta, like in mid four cap rates? How does rent growth differential between, let's say, L.A. and some of the other markets?
We're very IRR driven here. That's our thesis, as I've mentioned, for European markets. It's not necessarily the 3.5% or 4% cap. I don't want to scare anybody, but it's not necessarily the going-in yield that scares us. It's the coming out yield and what the IRR is. We're long-term holders of real estate, we do look at L.A. markets, we look at Seattle, we look at even San Francisco, that market around Oakland. If there are compelling growth opportunities there, then absolutely, we would carefully consider opportunities in that market. To us, we see decent rent growth prospects in the markets we're in now, and we're seeing going in yields that are still higher than L.A. We do look at that. It just, to us, makes more sense for us to continue to look at the target markets that we're in today.
Sure. Maybe just finally one from me on the maintenance CapEx guidance for next year. I think, Teresa, you mentioned CAD 15 million or CAD 0.30 per sq ft. Is that a go forward annual run rate, or do you think there is some catch up from 2020 as well, which was on the lower side?
I think probably because we do have about almost CAD 4 million in there that's allocated specifically to the Novi asset, which is more of an office type asset. Perhaps you should be looking at more something along the lines of CAD 12 million or so. I think, yes, we should be looking at as more of a trend going forward in that CAD 0.25 range to CAD 0.30 range per square foot.
Awesome. Thank you, guys. I'm turning it back.
Thank you.
Thank you. Our next question comes from Mike Markidis with Desjardins Capital Markets. Please go ahead.
Hi. I think we can still say good morning here, anyways. Kevan, you mentioned that you have a really helpful color on the pricing snap back that you saw in the U.S., and maybe I'd probably focus a little bit more on the [inaudible] with your recent acquisition. If I'm mistaken, I didn't know very much about Europe, so maybe just give us a comparison or contrast to what you've seen there over the last three, four months.
Europe has been quieter. It is getting busier now, for example, what we saw was transaction volume or acquisition opportunity volume drop sharply in late March and April in the U.S.. And I would say by June or July, it had come back. Clearly, there was a lot of demand for the product, and part of it maybe was there was a lot of demand for product and acquisition opportunities were just starting to ramp up. There was too much demand for too little product in the second quarter. By the third quarter, transaction volume in the U.S. had returned almost to normal. In Europe, that didn't happen. July, August was quiet, and that is partly a European thing. It is very quiet in the summer. You don't expect to see transaction opportunities to happen before the fall.
I think that's really why we just didn't see that much transaction volume in Europe, because that's typically what you don't see in the summer. We are seeing greater volume now. Again, we're heading into a period of potential restriction, so in that case, I would not be surprised to see vendors pull certain opportunities because a lot of parties will not be able to physically underwrite those assets. We'll see if that has an impact on the European market late in this quarter and early in 2021.
Okay, just following on that [audio ditortion] ?
Sorry, we didn't hear that, Mike.
Sorry. I think you mentioned you got a couple of things that you're working on now. I was just curious if any of that is in Europe or if it's all North America.
No. There are a couple of opportunities in Europe that we're moving down the road on hopefully.
Okay, great. Thanks very much.
Thank you. We have a follow-up question from Sam Damiani with TD Securities. Please go ahead.
Thanks. Just wanted to touch on the lease expiry schedule. It did look like your 2024 roll has come down a bit. You seem to have addressed one or more leases there. Perhaps that was a Magna lease that was renewed. Just wondering, are you prioritizing some of that lease roll in 2024 to be addressed within the next sort of 12 months? This kind of ties to the questioning earlier about the special purpose properties as well.
Sorry, Sam, you mean 2021 or 2024?
2024. I think the 2024 roll came down by about 10% quarter-over-quarter.
It must be the sale of the assets.
Right.
I'm looking at the team.
Yeah.
It must be the sale of those assets, Sam.
All right. That answers it. Thank you very much.
All right. No problem.
Thank you. I am showing no further questions at this time.
Thank you operator. On behalf of the trustees and management team here at Granite, thank you again for participating on our call today. To our unit holders, thank you for your continued trust and support. A special shout-out to our team in Vienna. Hang in there, and Christian, rest in peace.
Thank you. That concludes our conference call for today. We thank you for your participation and ask that you please disconnect your lines. Have a good day.