Good morning, ladies and gentlemen, and welcome to the conference call for Granite REIT. Speaking to you on the call this morning is Kevin Gorey, President and Chief Executive Officer and Theresa Neto, Chief Financial Officer. Before we begin today's call, I'd like to remind you that today's statements and information made in today's discussion may constitute forward looking statements and forward looking information and that actual results could differ materially from any conclusion, forecast or projection. These statements and information are based on certain material facts or assumptions, reflect management's current expectations and are subject to known and unknown risks and uncertainties. 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 2019 filed on March 6, 2019. Leaders are cautioned not to place any 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 required by law. In addition, the remarks this morning may include financial terms and measures that do not have a standardized meaning under International Financial Reporting Standards, please refer to the Q3 2019 condensed combined audited financial results and management's discussion and analyst of Granite Real Estate Investment Trust and Granite REIT Incorporated and other materials filed with the Canadian Securities Administrators and U.
S. Securities and Exchange Commission from time to time for additional relevant information. I would now turn the call to Kevin Gorrie. Please go ahead.
Thank you, operator. Thank you, everyone, for taking the time to join us for our Q3 earnings call. I'm pleased to be joined this afternoon by Teresa and Lauren Kummer, our Executive Vice President of Real Estate and Michael Ramperes, our Senior Vice President of Investments and Global Real Estate. Teresa will begin a discussion with a review of the financial highlights. I will then follow the comments on acquisitions, operations, development and strategy and then open up the call to any questions that you may have.
All right. Thanks, Kevin, and good afternoon, everyone. Thanks for making the time to join this call. The Q3 was one of Granite's strongest quarters ever posted, and we posted robust same property NOI and FFO growth and a continuation of investment activity with Granite executing acquisitions of 3 investment properties totaling approximately $84,000,000 followed by an additional $110,000,000 $102,000,000 of new investments announced post quarter. FFO per unit for Q3 was $0.93 an 8% increase relative to Q3 of 2018 and up 4% relative to Q2 of this year.
Included in this quarter's FFO is $400,000 of additional G and A expense pertaining to final costs relating to the departure of the Trust's former CFO. Normalizing for this item, FFO per unit would be 0 point 9 Q3 2018 was also impacted by employee termination costs of $1,000,000 whereby if adjusting for that item, FFO per unit would have been $0.88 Incremental FFO from new acquisitions, net dispositions, lower current income tax expense as well as a net small positive foreign exchange impact driven by our weaker Canadian dollar relative to the U. S. Dollar and offsetting the effect of a strengthened Canadian dollar relative to the euro, all more than offset the temporary dilutive effect of the $231,000,000 April equity offering where proceeds have not yet been fully deployed in the quarter. Granite's AFFO on a per unit basis in Q3 was $0.90 which is $0.08 higher than Q3 2018 and $0.02 higher than Q2 of this year.
AFFO per unit was favorably impacted by the higher FFO per unit and lower AFFO related capital expenditures incurred in the quarter of $1,400,000 compared to $2,100,000 in the same period last year. For fiscal year 2019, we are expecting total maintenance capital expenditures, leasing and commissions to reach approximately $7,500,000 for the year. In Q4 specifically, AFFO related CapEx is expected to be approximately $3,800,000 to $4,000,000 As a result of a relatively low CapEx quarter and strong FFO performance, the AFFO payout ratio for this quarter came in at 78%. Operating metrics continue to demonstrate positive momentum. NOI on a cash basis for the quarter increased by 3 0.9 percent from the same quarter of last year and by $2,000,000 or 3.4 percent from the Q2 of 2019.
Same property NOI for Q3 2019 was very strong relative to last year, increasing 4.3% and on a constant currency basis, increasing by 5.8%, driven mostly by occupancy gains in Canada, the U. S. And the Netherlands and contractual rent or CPI increases in the U. S, Austria and Netherlands. On a year to date basis, same property NOI is up $3,700,000 or 2.8 percent relative to last year and on a constant currency basis, 3.9%.
G and A for the quarter was $600,000 lower than the same quarter year and $1,700,000 lower than the Q2 of 2019, which if you recall was impacted by $2,100,000 of termination costs related to the CFO's departure. Included in the current quarter's G and A is $300,000 of expense related to the fair value loss associated with the increase in non cash compensation liabilities due to the increase in Granite's unit price. On a year to date basis, these fair value losses amount to $1,000,000 Assuming no further fair value variances from the remeasurement of unit based compensation liabilities, G and A for fiscal 2019 is estimated to be approximately $30,000,000 for the year and for Q4 G and A is expected to remain flat with Q3 at approximately $7,000,000 for the quarter. Note that the forecasted G and A for 2019 fiscal year would be $27,800,000 if CFO termination costs totaling $2,500,000 are excluded. In the Q4, the Trust completed a reorganization of its offstring entities whereby the ownership of the Trust and offstring entities is now controlled by the REIT's Netherlands structure.
This reorganization will result in future savings relating to withholding tax on Austrian dividends and will facilitate a future share sale efficiently. This reorganization will, however, result in a recognition of a real estate transfer tax expense of approximately €1,800,000 or CAD2.7 million in the 4th quarter. Although this will be a significant expense incurred in the current year, we expect to realize savings of the same €1,800,000 in 2020 when we anticipate distributing approximately €36,000,000 from Austria to Canada. And we'll continue to realize withholding tax savings every year thereafter on offstream distributions of approximately CAD 700,000 or CAD 1,000,000 based on current distribution forecasts. The trust balance sheet remains very strong, comprising total assets of approximately CAD4,500,000,000 at the end of Q3, an increase of $70,000,000 since the end of Q2 of this year, driven by $78,000,000 of fair value gains recognized on the Trust investment property portfolio.
Over 80% of this fair value gain is attributable to the Trust properties located in the GTA and USA. The increase in total assets was partially offset by a decrease of about $45,000,000 on the Trust European Investment Property Portfolio due to the strengthening of the Canadian dollar against the euro, but positively impacted by an increase of approximately $17,000,000 on the Trust U. S. Assets due to a weaker Canadian dollar against the U. S.
Dollar. The Trust's overall weighted average cap rate decreased 10 basis points to 6.2% at the end of the 3rd quarter. As disclosed, the REIT refinance has extended its U. S. Term loan in the quarter, which will result in interest expense savings of $0.03 per unit going forward.
The REIT continues to evaluate refinancing opportunities that can leverage its unique access to significantly lower European debt. Total net leverage at the end of the quarter was 20%, essentially flat with the 2nd quarter. The Trust's current liquidity is approximately $1,100,000,000 representing cash on hand of approximately 650,000,000 and the undrawn operating line of $500,000,000 Net leverage and liquidity, pro form a the October 31 equity offering, acquisitions and investments announced on October 21 and the completion of the disposition of the remaining 5 assets held for sale is estimated to be 20% and approximately $850,000,000 liquidity. The recent equity offering is expected to have a dilutive impact to the Q4. I'll now turn over the call to Kevin.
Thanks, Theresa. As always, I will keep my comments brief as I trust you've had the opportunity to review our MD and A and press release. As in the Q2, I would characterize the Q3, albeit very strong, as being in line with our expectations and slightly ahead of schedule in terms of progress against our strategic plan. During the quarter, we acquired a 260,000 square foot distribution center in the Netherlands and a newly constructed 300,000 square foot distribution center in Horn Lake, Mississippi, a suburb of Memphis with close proximity to Memphis International Airport and FedEx's main global aero. These assets were acquired at an average going in NOI yield of 5.9% and represent growth in 2 of our targeted markets in Europe and the U.
S, respectively. Also in the quarter, we acquired in partnership with Northpoint Development, a 191 acre infill site fronting U. S. Highway 90 in Northeast Houston. The site will accommodate approximately 2,500,000 square feet in total development, and we have launched Phase 1 comprising 2 buildings totaling roughly 150,000 square feet, which we expect to complete early in Q3 of 2020.
I will discuss the status of our other development projects shortly. During the quarter, we also closed on the disposition of our Finch Lane asset in Scarborough and expect to close on the sale of the 5 Michelin assets in the Q4. Our dispositions are expected to total just over $105,000,000 by the end of the year, which is at the low end of our guidance for 2019. Execution of the lease extension documents and preparations for the sale of our assets held for sale sorry, I should say our assets planned for sale in Austria, Spain and Windsor required more time than expected and those transactions will now be pushed into 2020. We have decided for now to retain our asset in Redditch, England, pending clarity around Brexit and market conditions in Britain.
Following the acquisitions and dispositions which occurred on or before September 30, our Magna tenant concentration by revenue and GLA has decreased to 47% 40%, respectively. Putting us ahead of schedule on our previously announced target of reducing our Magna concentration to below 50% on a revenue basis by the end of 2019. Pro form a to sales in the Michigan portfolio and the announced acquisitions, including the Dallas, Texas development, which is expected to close later this month, our concentration is expected to decrease further to 41% 35% of revenue and GLA respectively on a run rate basis. Operationally, we have now negotiated extensions on roughly $1,400,000 or 65 percent of lease expiries in 2020 and an average rental rate increase in rental rate of over 5%. The remaining 750,000 feet of expires in 2020, which occur in the second half of the year, we anticipate an average rental rate increase of 7% to 8% on renewal or re leasing.
At our current occupancy rate of 99.7%, we now only have 90,000 square feet of vacant space related to the Novi asset in Michigan. In the quarter, we executed a 10 year lease at our 600 Tesla property in Vaughan with a leading global e commerce provider. As Teresa mentioned earlier and as disclosed in our MD and A, same property NOI is up 3.9% year over 18 was relatively broad based and positive across all geographic segments on a constant currency basis, ranging from 1.8% in Austria to over 70% in the Netherlands, led, as Teresa mentioned, by leasing activity and occupancy gains from 2018. We expect same property NOI growth to moderate in Q4 from 5.8% this quarter and finished the year above our 2019 guidance of 2% to 3%. We also reiterate our same property NOI growth guidance of 3% to 4% for 2020, 3% roughly excluding intensification and 4% including intensification.
As an update on our development program, we are continuing with the tendering phase on our Altbach development project in Stuttgart, Germany and hope to commence construction in early Q1 2020 for completion in late 2020. We remain in discussions with active prospects for the entire space. Our development project in all points in Indianapolis continues to progress on schedule with substantial completion expected in early Q2 2020. As disclosed in our press release and MD and A, our development site in Dallas is now substantially complete and the tenant has waived the right under lease to purchase the building. Subject to normal closing conditions, we expect the transaction to close this month.
The proposed expansion of the Conject Food Distribution facility on Logistics Drive in Mississauga is currently in for a permit and tendering. We anticipate commencing construction in the Q1 with completion scheduled for late Q2. As an update on the proposed development project in Calgary announced earlier this year, we were unable to economically resolve certain planning and zoning issues related to the acquisition of the land and will not be moving forward with the transaction. As previously discussed, we anticipate that these development projects will further enhance the quality of our portfolio, generate superior long term returns and create significant NAV growth for our unitholders upon stabilization, all a major component of our corporate strategy and philosophy. As Theresa mentioned, the combination of the Austrian restructuring charge and additional units from the October 31 equity offering will negatively impact the results for Q4.
The restructuring charge will improve our cash flow in 2020 beyond and the equity raise will enable us to execute on our growth plans for 2020, in conjunction with planned refinancing and potential financing initiatives. As an important part of our organizational and growth strategy, John Sorg joined our team in October and will lead our platform and portfolio strategy in the U. S. The addition of John and Richard further improves our platform strength and capabilities in the U. S.
And Europe respectively. In closing, we are very pleased to announce our 8th consecutive annual distribution increase. It is a product of a conservative capital structure and stable and sustainable cash flow growth that enables us to increase the distribution in 2019 and maintain conservative capital ratios for future potential increases. On that, I will now open up the floor for any questions.
And our first question is from the line of San Diego with TD Securities. Please go ahead.
Thanks and good afternoon everybody and congratulations on a great quarter. Kevin, can you just clarify the what you said about dispositions in I think it was 3 markets that were being deferred, I think you said until 2020. I didn't quite catch the details of what you were saying there.
Yes. The 3 markets involved, Sam, are Austria, Spain and the Patillo asset in Windsor.
The total sort of GLA of those assets
roughly?
I think the total value is roughly $60,000,000 I don't have the GLA on hand. Okay.
So they're not huge assets?
No. Okay.
And it was sort of pending sort of lease finalizations with the tenants?
Yes. Getting the lease extensions tapered and then just preparing the assets for sale, including property condition reports and so forth. So those are now expected to commence in 2020. Okay. And
then as we look forward to 2020 in terms of acquisitions with more people on the ground, obviously, in Europe earlier this year and most recently in Dallas. How should we expect the mix of growth investments for Granite in 2020?
Well, it looks like, I think year to date, including land for development, we've acquired roughly $650,000,000 of assets. We'll probably we hope to finish the year a little north of 700 $1,000,000 Realistically, I think we'll do something similar to that in 2020, probably somewhat better, but in that range, Sam.
And are you biasing U. S. Over Europe? Are you looking seriously at more in Canada?
Well, we're looking in Canada, but I think rightly so, we've been very selective about what we're doing in Canada. We still are seeing superior returns in the U. S. And Europe. So I would say the bulk of our acquisitions, including development sites that we would look to acquire, would occur in Europe and the U.
S.
Okay. And just you mentioned the lease at, I think it was 600 Tesma. When does that lease the rent when does the rent commence there? And are you able to name the tenant?
I'm not able to name the tenant under the conditions of the lease. The rent commenced September 1.
Thanks. I'll turn it back.
Our next question is from the line of Mark Rothschild with Canaccord Genuity. Please go ahead.
Thanks and good afternoon everyone. In regard to the new development project that you bought in Dallas, can you talk about the market for finding those type of deals, find product newly developed? And then maybe in that context, how would the cap rates going in on this deal compared to buying an asset that maybe the tenant was already paying rent and if you buy it later on in the process, did it matter at all? Considering there was a lease in place, I'm not sure if that played into this deal.
Well, I think it did, Mark. I would say with assets like this, because of their scale and the value of them, I think you have to be very selective. So we had looked at a few opportunities, frankly, globally for assets like this, we felt like it was a very good fit strategically. But I think we are quite selective on the markets and the locations within the markets that we are looking for. This one fit our investment criteria.
In terms of the cap rate consideration, it is our belief that there was cap rate consideration for a full repurchase. I wouldn't speculate today on what that is, but I would offer that buying out that asset on a stabilized basis would be at a higher price than what we agreed to purchase it for.
Okay, great. And then just maybe in regards to Calgary, the asset that you're not going forward on, is there is that any significance related to your view on the market or is that completely separate and maybe your view in general on the Alberta industrial market?
I would say it this way. I think it was more related to costs associated with infrastructure and servicing of the site and there were some question marks that what we could eventually build there. The other layer that I would put on top of that though is we felt like our flexibility in terms of pricing and what we can achieve was quite tight. So this was a site where we weren't willing to push in terms of our pro form a and what we thought we could achieve on a rental rate basis and a timing basis. So I think that's kind of the best way I would put that.
Our next question is from the line of Chris Couprie with CIBC. Please go ahead.
Good afternoon. Just two quick ones for me. Just sort of the organic growth outlook, would you be able to give any color in terms of the different geographies, what your growth expectations are about geography? And then secondly, Kevin, you mentioned earlier financing and refinancing initiatives for 2020. Just any color on that?
I'll let Teresa talk about the refinancing opportunities. But on the same property NOI, I think you're talking about probably we did provide some color in 2019. There was a lot of leasing activity that drove our same property NOI growth this year, particularly in Europe. 2020, there was a segment done in Canada and the U. S.
And Europe. So I think 2020, the expiries were more broad based. Obviously, we're seeing better rental rate growth on our expiries and renewals and re leasing in Canada. But we do expect them to be positive across all the geographic segments with Canada obviously leading the way in 2020 in terms of growth.
And Chris, on the financing side of it. So we're always looking at kind of like opportunities. So for instance, we have a maturity of $250,000,000 in 2021. Right now, it's still not worthwhile to refinance that due to the prepayment penalties on the debentures. So that's something we're going to park for a little while.
We're looking at the term loans and doesn't make sense to do something similar to what we did with the U. S. Dollar term loan. We have another Canadian term loan. Again, looking at the cost, we have a mark to market that's negative in a liability position on that particular term loan, the swap related to that.
So we're looking at, it doesn't make sense to refinance, repay that economically. So that's another option. And then we're keeping an eye on the debenture market. And right now, it's very favorable and a lot of REITs have successfully raised money in the market. But for us with the recent equity offering, we have to time this appropriately.
And also it depends largely too, we would favor and lean towards financing, for instance, our European acquisition pipeline with financing and swapping into euro debt. So the timing of that will depend on the acquisition pipeline in Europe.
Thank you.
Our next question is from the line of Howard Wong with Veritas Investments Research. Please go ahead. Thank you. Just wanted to touch on the comments Kevin you had about next year's same property NOI growth being about 3% or 4% if you include these kinds of occasions. I guess you guys are pretty fully leased.
So will most of that 3% growth come from the rental that's that you're seeing? And if so, where which geographies or which kind of assets are you seeing the most potential for the rental
You're right, Howard. It would be mostly related to rental rate growth. But I will point out that Novi, that 90,000 feet, that's actually really a suburban office asset. So releasing on that tends to move the needle on a portfolio on our portfolio more than any other asset. And then in terms of the geography, I think as I mentioned, we have a number of expiries in the GTA area, which we think are going to lead that growth.
We do expect rental rate growth on renewals and re leasing generally across all of our markets in 2020.
Okay. No, that's good. And then just one for Theresa. The European debt capacity there, you have about, I guess, $1,000,000,000 $1,200,000,000 in terms of fair value of European properties. How much more debt can you think you could get against those properties?
As you right now, Howard, we're pretty well fully hedged on our net investment in Europe. We probably have very little room, maybe 20 $5,000,000 I think right now is a good estimate. So I mean, it's really looking at total net equity there, and we're fully hedged at the moment.
And then just last one on maybe the Finch Deane disposition. I was wondering if you could
give a little bit
of color on that one and why that one was sold. Was it did someone approach you or was it in the market?
We actually had it on the market both for sale and lease, and we went back and forth. And in the end, we felt, I think it was probably best just to let go of this asset at this time. So we made the decision to execute a sale of the asset versus re leasing.
Okay, great. Thanks. I will turn it back. And there are no further questions on the phone lines at this time.
Well, thank you, operator. And on behalf of the trustees and the management team here at Granite, thank you all again for participating on our call today. And to our unitholders, thank you for your continued trust and support. Have a good day.
That does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your lines.