Good morning, ladies and gentlemen, and welcome to the conference call of 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 would like to remind you that statements and information made in today's discussion may constitute forward looking statements and forward looking information and that actual results could differ materially from any conclusion, forecast or projection. These statements and information are based on certain material facts or assumptions, reflect management's current expectations and are subject to known and unknown risks and uncertainties. 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 16, 2019. 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 a standardized meaning under International Financial Reporting Standards.
Please refer to the Q2 2019 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 the Canadian Securities Administrators and U. S. Securities and Exchange Commission from time to time for additional relevant information. As a reminder, this conference is being recorded August 1, 2019.
I would now like to turn the conference over to Kevin Gorey.
Thank you, operator, and thank you everyone for taking the time to join us for our Q2 earnings call. I am pleased to be joined this afternoon by Teresa Neto, our CFO Lauren Kummer, our Executive Vice President of Global Real Estate and Michael Rem Paris, our Senior Vice President of Investments and Global Real Estate. Theresa will begin our discussion with a review of the financial highlights for the quarter. 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.
Over to you, Tricia.
Thanks, Kevin, and good afternoon, all, and thank you for taking the time to join this call. The 2nd quarter was active transactionally with Granite executing acquisitions of 3 investment properties totaling approximately $225,000,000 followed by an additional $83,000,000 investments announced post quarter and completing a $231,000,000 equity offering in April. FFO per unit for Q2 was 0 point 8 $9 a $0.07 increase relative to Q2 2018 and flat to Q1 of this year. Included in this quarter's FFO is $600,000 of lease termination fees and $2,100,000 of additional G and A expense related to the departure of the Trust's former CFO. Excluding these two items, FFO per unit would be 0 point 9 realized $1,900,000 foreign exchange loss on the remeasurement of U.
S. Dollar proceeds related to sold properties in Q1 of last year and an incremental $1,000,000 of G and A costs relating to departed executives in that year. Therefore, adjusted for these two items, FFO per unit for Q2 2018 would have been $0.88 Further, despite Q2 2019 being negatively impacted by the temporary dilutive effect of the $231,000,000 equity offering where proceeds have not yet been fully deployed, this was mostly offset by incremental FFO from acquisitions, net of dispositions as well as a small net positive foreign exchange impact driven by a weaker Canadian dollar relative to the U. S. Dollar, offsetting the effect of a strengthened Canadian dollar relative to the euro.
Granite's AFFO on a per unit basis in Q2 was $0.88 which is $0.24 higher than Q2 2018 and $0.02 higher than Q1 of this year. Included in the current quarter's AFFO are the termination fees and incremental G and A costs previously discussed and in the comparative AFFO of Q2 2018, included are the foreign exchange loss and incremental G and A costs for departed executives also discussed. Therefore, adjusting for these various nonrecurring items, AFFO per unit for Q2 2019 would be $0.91 and for Q2 prior year, it would be $0.70 a $0.21 difference. AFFO per unit was favorably impacted by a higher FFO per unit and significantly lower AFFO related capital expenditures incurred in the quarter of only $600,000 compared to $6,200,000 in the same period last year. Capital expenditures in Q2 2018 reflected expenditures made in relation to the re leasing activities at the Trust's Novi, Michigan and Olive Branch, Mississippi property.
For fiscal year 2019, we are expecting total maintenance capital expenditures to reach approximately $7,000,000 or about $2,500,000 per quarter for the remainder of the year. As a result of a relatively low CapEx quarter and strong FFO performance, the AFFO payout ratio came in at 83% in Q2. Operating metrics continue to demonstrate positive momentum. NOI on a cash basis for the quarter increased by $3,100,000 or 5.6 percent from the same quarter in 2018 and by $3,200,000 or 5.8 percent from the Q1 of this year. Same property NOI for Q2 2019 was flat relative to both Q2 last year and the Q1 of 2019.
On a year to date basis, safe property NOI is up $1,800,000 or 2% relative to last year. The positive impact from contractual rent Testimawait in Blonde and 2100 Center Square Road in New Jersey. Also the impact of the 10 year lease renewal at our property the Netherlands completed last year, which resulted in free rent and a reduction of rent as well as a negative FX impact with same property NOI variances skewed towards the weaker euro relative to the Canadian dollar. Same property NOI growth on a constant currency basis, eliminating for the impact of foreign exchange, is 0.6% of 2nd quarter and 2.8% year to date. G and A for the quarter was $1,400,000 higher than Q2 of last year and $700,000 higher than the Q1 of this year.
Included in G and A for this quarter are salary and unit based compensation of $2,100,000 related to the departure of the Trust pharmacy of O in June previously mentioned. Assuming no further fair value variances from the remeasurement of unit based compensation liabilities, G and A on a normalized basis at this time is estimated to be approximately $6,000,000 per quarter for the remainder of the year. The trust balance sheet remains very strong, comprising total assets of approximately $4,400,000,000 at the end of the second quarter, an increase of $283,000,000 since the end of the Q1 this year, driven by the trust acquisition activity partially funded by term loans drawn down in December 2018 and the $231,000,000 equity offering completed in April, as well as an approximately $70,000,000 fair value gain recognized on the Trust investment property portfolio. Approximately half of this fair value gain is attributable to the Trust properties located in the GTA. The increase in total assets was partially offset by a decrease of $40,000,000 on the Trust's U.
S. And European investment property portfolios due to a strengthening of the Canadian dollar against both currencies since March 31, 2019. The Trust's overall weighted average cap rate decreased 20 basis points to 6.3% at the end of this quarter. As of quarter end, Granite had a total of 6 assets held for sale comprising approximately 800,000 square feet and an IFRS value of approximately $15,500,000 and that contributes contributing annualized revenue of $3,600,000 dollars Since Q1 of 2019, we added 1 additional property located in Toronto to the asset held for sale category. The remaining properties are located in Michigan and are Magna, tenanted.
Total net leverage as of June 30 was 21%, slightly below the Q1 of 2019, which was up 22% due to the net proceeds received from the April equity offering as well as the fair value gains recognized on investment properties. The Trust's current liquidity is just below $1,000,000,000 representing cash on hand of approximately $450,000,000 and the undrawn operating line of 500,000,000 Net leverage and liquidity, pro form a the acquisitions and investments announced on July 18 and the completion of the disposition of the 6 assets held for sale is estimated to be 27% and approximately $650,000,000 respectively. I will now turn the call to Kevin, who will discuss the operational results and recent investment activity in greater detail.
Thanks, Teresa. As in the Q1, I would characterize our Q2 as being in line with our expectations and slightly ahead of schedule in terms of progress against our strategic plan. When adjusting for the one time items, as Teresa mentioned, FFO and AFFO per unit came in ahead of Q1 despite the strengthening in the Canadian dollars since March 31, the sale of the Iowa assets in the Q1 and the $230,000,000 equity issuance on April 30, which I believe positions us well for continued growth in FFO and AFFO per unit in the second half of the year. In the quarter, we closed on roughly $225,000,000 in acquisitions, which included the Wayfair conjugate assets in Mississauga and the newly constructed 800,000 Square Foot Quaker Distribution Center in the Rickenbacker market of Columbus, Ohio. I will discuss the proposed expansion of the conjugate facility as part of my commentary on development momentarily.
Subsequent to the quarter, we acquired a 200 and 60,000 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 air hub. These assets were acquired at an average going in cap rate of 5.9% and importantly represent growth in 2 of our target markets in Europe and the U. S, respectively. As disclosed in the MD and A, there are 5 Magna tenanted assets located in Michigan that are being held for sale as at June 3. We have negotiated a purchase and sale agreement with the buyer and expect to conclude the transaction in the Q3.
We are also currently under PSA for the sale of the Finishing asset, which we also hope to close by the end of Q3. Following the acquisitions and dispositions, which occurred in the first half of the year, our Magna tenant concentration by revenue and GLA has decreased to 48% 41%, respectively, putting us well ahead of schedule on our previously announced target of reduction of our Magna concentration to under 50% on a basis by the end of 2019. Operationally, we have renewed 2.4 3 of the 2,470,000 square feet of space that was scheduled to expire in 2019. Further, we have negotiated extensions on 800,000 representing 45% of the 1,800,000 square feet of expiries in 2020 at an average increase in rental rate of 4.5%. The remaining 1,000,000 square feet of expiries in 2020 occur in the second half of the year, and we anticipate an average increase in rental rate of 7% to 8% on renewal or re leasing.
Of the 386,000 square feet of vacancy showing on the lease maturity schedule, we now have only 90,000 square feet of vacant space related to the Novi asset in Michigan and 145 1,000 square feet coming from our 600 Tesla asset in Vaughan. We are finalizing a conditional lease deal on the Tesla property with a strong credit rated tenant for a 10 year term, and we expect rent to commence in the Q3. With that, occupancy is expected to move slightly higher in Q3. As Teresa mentioned and as disclosed in her MD and A, same property NOI is up 2.8% year to date on a constant currency basis, but decreased significantly from Q1 due to a number factors that aided our growth in the Q1 and reversed or decreased in the Q2, including our Novi, Michigan property. We expect same property NOI to strengthen in Q3 and Q4 from this quarter due to leasing activity year to date and the anticipated lease up of 600 test month, and we reiterate our guidance of 2% to 3% for 2019.
As an update on our development program, we are proceeding to the building permit and tendering phase on our Albaq development project in Stuttgart, Germany, and hope to commence construction at the site in late Q4 of this year or early Q1 2020. Following a very productive marketing process, we are in discussions with a few prospects for the entire building. Our development projects in Texas and All Points Indianapolis continue to progress on schedule with substantial completion expected in Q3 2019 and Q2 2020, respectively. As I touched upon earlier, we recently entered into an agreement with the tenant, Conjabec, at our recently acquired 2,095 Logistics Drive property in Mississauga to expand our premises by approximately 60,000 square feet. The expansion is expected to cost approximately $9,000,000 and generate an unlevered NOI yield of 8.9%.
The lease term on the expansion will be co terminus with their existing space at roughly 19 years remaining. We are very pleased to be working with Colliabec on the expansion of this state of the art food distribution facility years ahead of schedule. For the proposed development in Calgary, we continue to assess various environmental planning and zoning issues related to the acquisition of the land and have no update at this time on the potential closing of that transaction. On a final development note this quarter, we closed as announced on the acquisition of 191 Acres of Land in Houston, Texas as part of a joint venture with Northpoint Development. We hope to commence construction shortly on the first phase of the 2,500,000 square foot business park or roughly 650,000 square feet with completion scheduled for Q2 or Q3 of 2020.
As announced, we expect to generate a development spread of roughly 200 basis points over stabilized yield. And as previously discussed, we anticipate that these projects will further enhance the quality of our portfolio, generate superior returns and create significant NAV growth for our unitholders, a major component of our corporate strategy and philosophy. In closing, it has been a very active and productive first half of the year as we have made significant progress against many of our strategic objectives for 2019. And following the equity raise in April, we have ample liquidity to execute on acquisitions and development through 2019, while preserving our low leverage and balance sheet flexibility. We also look forward to launching our new website and sustainability plan in this quarter.
On that, I will now open up the floor for any questions.
Thank Our first question comes from the line of Chris Couprie with CIBC. Please proceed with your question.
Good afternoon. Maybe just starting out with Europe. So you've closed on your first acquisition with the new office there. Can you maybe just discuss more broadly what the strategy in Europe is going to be going forward? What markets are you looking to target?
And what size of properties and so on that you're looking to acquire?
Yes. We appreciate the question. Right now, our strategy in Europe is focused on the Netherlands, Germany and Poland. Now that may expand to 1 or more markets, but right now we feel those are the markets where we should be pursuing core and value add properties first, and that's where we've been spending our time. On that, Chris, we've looked at individual asset sales and portfolio.
We recently pursued a portfolio transaction, but the pricing got a little heavy for us. So when we look at potential opportunities there, we're looking for individual assets on a stabilized basis, redevelopment asset opportunities and even, to a smaller degree, development opportunities in our target markets.
And just in terms of pricing, how does pricing compare in Europe with, say, North America?
Well, I think pricing in Europe is lower than the U. S. And comparable to what we're seeing in Toronto and even Vancouver and for a combination of factors. 1, I think, as you're aware, financing is extremely attractive and low, particularly in Germany. So the spread over financing continues to be attractive in those markets.
And 2, the leasing fundamentals continue to be very strong. I think as we've discussed, e commerce is still in its early stages in Continental Europe. We're seeing the impact. We're beginning to see the impact of e commerce demand on those markets. Occupancy continues to move up.
And we believe, and I think others agree, that rental rates are going to continue to climb at a more rapid pace over the next 5 years in those markets.
And just sticking with Europe, is there potential to make any dispositions in that market of Magna tenanted properties?
We're currently working on dispositions of our Magna tenanted assets or sorry, I'll just say assets in the UK and Spain. And I think there are opportunities for a few others in Europe in 2019. And I think as we've announced, we expected to sell or dispose of roughly $150,000,000 in total to $200,000,000 this year, and I think we remain on track to do that.
Okay, great. And then just two quick questions on dispositions. Number 1, the Finch Deane Square, kind of what led to that decision? And then secondly, in the disclosure, a tenant had a purchase option, I guess, on a property that they've exercised. Could you option, I guess, on a property that they've exercised.
Could you let us know which property that is? And if there are any other details you can disclose around that?
On the first question regarding Finstane, that was an asset that we had listed for lease or sale. It is in Scarborough, it is in the GTA, but it is not by its criteria, not core to our strategy. So we went out to market for a tenant or a buyer and it turned out that the buyer prospects were more attractive than the lease prospects. We decided to move forward with the sale or we are moving forward with the sale. On the question regarding the right to buy, we are in we are currently in discussions with the tenants.
So at this point, Chris, we don't want to disclose the property, because we don't want to prejudice the process.
Fair enough. I'll turn it over. Thanks.
Thank you.
Our next question comes from the line of Nana Wang with Scotiabank. Please proceed with your question.
Thank you and good afternoon. Kevin,
what do
you think are the sources of MAP per unit growth going forward? Will you rely more heavily on same property NOI growth and active asset management? Or do you think there's still room for further cap rate compression?
Well, I do think that there's further room for cap rate compression. I do see actually interest rates, if anything, will continue to move lower. I think that supports lower cap rates. I think there is general consensus that rental rates are going to continue to be rental rate growth is going to be continue to be very strong for our sector. So that will also help to push cap rates lower.
For us, I think what you said is generally true. We are NAV growth is 1st and foremost going to come from same property NOI, we believe, in future continually sorry, especially as we continue to transform the portfolio. We're transforming the portfolio in terms of diversification and quality. We think that will set us up for better same property NOI growth in future. But also let's not forget our development program.
I mean, what we have going on in Dallas, in Indianapolis, in Stuttgart, in Mississauga, these we believe will add significant NAV growth just off the top of our heads. I think we believe those projects, the first phase in Houston and Dallas and Indianapolis will add roughly $1.50 per unit in NAV, and that's significant.
Now circling back to Magna, now that you're below 50%, do you have a long term target in mind of how much concentration you would like to have?
I've been asked that question before. It's difficult because roughly 20% of our portfolio is in the GTA and most of that is Magna. And so the quality of the locations are very attractive for us. So we're not sure we would want to dispose of those Magna assets. When you turn to Europe, it depends.
I think it's hard to say at this point whether we would hold a significant exposure to Magna in Europe, because as we've stated before, the goal is to maximize the attractiveness, if you will, of those assets. So that means lease extensions, increasing the rents, etcetera. So once we do that, if we're successful in doing that, then we'll evaluate The best thing to do is to keep those assets, sell those assets, sell an interest in those assets. So we'll evaluate that at that time. But I bring up the GTA component of that because these are assets we may wish to hold long term.
Makes sense. And one last question. Your previous announcement of the step development that you're doing with Northpointe, Can you just give a bit of color on what you're thinking about how to proceed with the spec development? I don't think you've done development on spec before.
Well, the Indianapolis development is on spec, and the one in Alt Mac could be, although we're relatively confident from the prospects that we have that this may end up being a build to suit project. But we have a lot of comfort moving ahead with speculative development in Stuttgart. It's extremely low vacancy there. In terms of Houston, the way we're approaching it, it's 2,500,000 square feet of total. We are moving ahead with the project on a phase by phase basis.
The first phase is 2 buildings, 650,000 square feet. We would not proceed we would likely not proceed to a second phase until we have leased up substantially the first phase. So that's how we would approach a project like that.
Okay. Thank you. I'll turn it back.
Our next question comes from the line of Sam Damiani with Securities. Please proceed with your question.
Thanks very much. Kevin, you've had a busy 1st 12 months on the ground with Granite, particularly on the pace of acquisitions and growth. How do you see year 2 shaping up for Granite?
Well, it's a great question. I think 2020 will be active, but probably not as active as 2019. And a lot of it, Sam, is contingent upon our disposition program. And at this point, it's hard to say what exactly that looks like, but that disposition program will drive a lot of our decision making in 2020.
That sort of ties into my next question. What is your leverage goal? Historically, it's been 35%. Where do you see that evolving to if it's going to change at all? Should we still expect 35% in the next year or 2?
Or are you thinking maybe a little lower?
I think on a long term basis, if we could do it, I think a little lower would be good. What we have said though is we do reserve the right to be above 35% in the near term as we execute on strategic objectives. But long term, 35% to us would be the high end of the range.
Okay. And maybe just switching over to debt. You still got a lot of cash to use, but over the next few quarters, what type of debt do you see sourcing? And what is the pricing for that now? Like would you do more euro swap type deals or more traditional debt domestically?
So Sam, we would obviously try and tap into the euro market because obviously where the interest rates are, but we are nearly 100% hedged relative to our investment there. So we always have to keep that in mind. We won't be swapping if we're not adding additional assets in Europe. But I think frankly for us, the term term loans and bank loans seem to be certainly the easiest, simplest way to access the right types of size of markets that we need. If we're going to go out and do like a public debenture, we have to be looking at $250,000,000 to $300,000,000 dollars in an offering.
So depending on our need, a term loan might suit us better and give us more flexibility. So that's probably going to be our primary type of debt in the near term.
That makes sense.
Okay. And just one last one. The property operating costs ticked up a little higher again in Q2. How do you see those that line item shaping up for Q3 and Q4 this year?
Property operating costs?
Yes, kind of the cost of
carrying vacant space. I'm assuming it will go down, but I'm just wondering if you had a number in mind.
Can I get back
to you on that, Sam?
I just to make sure I'm giving you the right number.
Absolutely. Thank you. I'll turn it back.
Thanks. Our next question comes from the line of Troy MacLean with BMO. Please proceed with your question.
Good afternoon. Just on the Northpoint relationship, the 200 basis points development spread on the project in Houston, is that typical for the market? Is there something else that's driving that?
I think that's a little bit better than market, to be honest with you. I think a lot of that comes down to the land basis, the cost of the land. And because of the relationship, we can't talk too much about the particulars there, Troy, but I think that, that would be above market. I would expect to see somewhere closer to 150 basis points.
Okay, that makes sense. And then just on the latest acquisitions in Columbus and the Horn Lake acquisition, they're very new properties. How would the purchase price compare to replacement cost?
I think it's very close to replacement cost, be honest with you. Both Rickenbacker and the Memphis 1 have seen a tremendous amount of growth, and we've seen land values move in both those markets. So I would put both those acquisitions very close to replacement costs.
And then the acquisition market is obviously very competitive, but are there opportunities to buy like vacant properties to do some value add or are you paying full price for those right now?
It's hard to say. We do look at those opportunities very closely, Troy. And to be honest with you, we haven't seen too many where it has been compelling. I think in a lot of instances, the vendor wants full value or very close to full value. And so it hasn't to date worked for us, but we are working on one right now in one of our target markets, which we would acquire on a vacant basis.
And then there's been a lot of M and A in the space. And I know some of the when Prologis recently bought a portfolio, they've talked about selling some of that portfolio. Are you seeing like more acquisition opportunities just because there's been so much transactions like the follow on opportunities?
I think in our experience, particularly our recent experience, those portfolio acquisitions have been very competitive. We've been very openly marketed. We are looking at one recently where the feedback from the broker was over 80 CAs were signed. And they had identified a top tier of buyers that was the end of the dozens. So I think for us, we feel the greater value is pursuing off market or individual assets.
Obviously, we look at M and A opportunities, we look at portfolio opportunities. But when they're fully marketed like that, we just feel that we probably can't be as competitive from a pricing perspective. We see better value in the one off deals and off market transaction opportunities.
And then just finally, with the recent lease up of the vacant space and the higher rents on renewals, do you think organic growth in 2020 will be higher than the 2% to 3% you're guiding for 2019? Or should it be like kind of consistent?
No, 2 things I would say, I agree with that. I think I'm pretty sure at the beginning of the year, I think you said 2% to 3 percent for 2019 and 3% to 4% for 2020. And I would stick with the one thing the one caveat that I would point out is we need to remember with a number of these large mining assets, they have rent that's flat either till renewal or for 5 years. So until we see those rent bumps, they do mute our same property NOI growth. That's why we're guiding towards 2% 3% this year and 3% to 4% for next year.
Perfect. That's great color. I'll turn it back.
Our next question comes from the line of Howard Young with Veritas Investment Research. Please proceed with your question.
Thanks. I want to just touch on and follow-up on funding here. You did an equity raise last quarter and given where you are now with your net leverage ratio and your disposition plans, what's your thoughts about doing another raise at this current valuation?
It would not be, I think, in our best interest to do an equity raise at this valuation. I think in terms of the timing in April, with the acquisitions we had announced in our development capital commitments and our pipeline, what we wanted to avoid was being in a position near the end of the year where we had deployed all of our capital, we had reached 35 percent leverage and needed further equity to fund acquisitions and development. And based on our cost of capital at the time, it made perfect sense. So we're very happy that we have the liquidity to see us through 2019. And where we are trading right now, I would not issue equity.
Okay. That's fair. And then just another follow-up on your comment, Kevin, about the off market assets. Can you just maybe give some color or discuss some strategies that your team is going through to kind of engage and source these one off deals?
Well, number 1, it's about transacting with the right brokers in our target markets, and we, I think, do an excellent job. The team does an excellent job of doing that. It's very important to us how we transact and who we transact with. So I think we have developed a very strong reputation in our markets with key brokers and other relationships, vendors and developers. We transact very fairly, very professionally and do what we say we're going to do.
And it sounds rather cliched, but it's the truth. So I think we've built a reputation of transacting and being very honest in our transactions with people. And over time, that earns you friends and it earns you first look and at times last look at opportunities. And it has brought us, in my opinion, a number of off market opportunities which we've transacted on.
Right. And do you see that like the funnel like Filo's deals is getting more efficient, I guess, as you guys get more connections? Yes.
I think that that's a fair comment. And I will tell you that I know it looks like we've been active on the acquisitions front we have, but we're still probably transacting on 1 out of 10 opportunities that we see. We see opportunities are brought to us every day. And we're very clear and we're very concise in our communication with what we want to buy and the markets we want to buy in. We don't want to waste anybody's time.
And I think that that's another important point that I would make is you have to be very clear in your communication with what you want to acquire and how you want to acquire it. And we've done that in our markets. And so that is leading to better efficiencies. We're starting to see acquisition opportunities that fit our investment criteria, and we can choose which ones we want to pursue.
All right, great. Thanks for the color. I'll turn it back.
Thank you. Our next question comes from the line of Mike Markidis with Desjardins Capital Markets. Please proceed with your question.
Hi, everybody. Kevin, just to clarify the 2% to 3% and 3% to 4% same property kind of growth outlooks for this year and next, are those constant currency basis?
Yes.
Okay. Can you kind of
I mean, you mentioned that because of the nature of these steps in the Magna sort of special purpose that that could temper it just because of the timing of when that comes through. So if we think about that, then can you walk us through the contributors of growth on the other side? Because your lease maturity schedule is not that you get biannualized revenue of 3% next year, 6% the year after that, and you're talking about 7% to 8% rent steps or rent renewal increases on new leases and renewals. So I'm just trying to get a sense of where the growth is coming from.
Yes. And I think you're right. There were some leasing. We've got some downtime in pre rent in 2019, which I think will the leasing activity this year will help set it up for next year. The rent spreads that we're seeing late in 2019 and, frankly, the expiries in 2020, by our math, brings us just over 3%.
Okay. Okay. So it sounds like some leasing activity and the follow on effect of leasing activity and runoff of free rent. So I guess then going forward in 2021, 2022, I mean, we're starting to really look out forward here. But as those sort of things normalize and if you maintain existing occupancy, what do you sort of see as being a normalized same property growth rate?
It's hard to say. I'll admit that it's hard to say at this point, Mike. But I think our goal would be in that sort of 4% range. And keep in mind, like I said, if you have one of a large asset like a Gratz or others where you have a CPI look back, those rent looks can be large. So we may have the situation where we're 2.5% 1 year, 4.5% the next year, 3%.
So it's lumpy, but I'm comfortable with the 4% range in 2021 and 2022 at this point in time.
Okay, that's fair. Thanks very much.
Mr. Ghauri, there are no further phone questions at this time.
Okay. Thank you, everyone, for joining us on the call. And again, for our value unitholders, thank you for your trust and your support, and we look forward to talking with you in Q3.
That does conclude the conference call for today. We thank you
for your participation and ask that
you please disconnect your line.