Good morning, ladies and gentlemen, and 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, and that actual results could differ materially from any conclusion, forecast, or prediction. 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 1st, 2019. I would now like to turn the conference over to Kevan Gorrie.
Thank you, operator, and thank you, everyone, for taking the time to join us for our second quarter earnings call. I am pleased to be joined this afternoon by Teresa Neto, our CFO, Lorne Kumer, our Executive Vice President of Global Real Estate, and Michael Ramparas, our Senior Vice President of Investments in Global Real Estate. Teresa will begin our discussion with a review of the financial highlights for the quarter. I will then follow with comments on acquisitions, operations, development, and strategy, and then open up the call to any questions that you may have. Over to you, Teresa.
Thanks, Kevan, good afternoon all, and thank you for taking the time to join this call. The second quarter was active transactionally, with Granite executing acquisitions of three investment properties totaling approximately CAD 225 million, followed by an additional CAD 83 million of investments announced post-quarter and completing a CAD 231 million equity offering in April. FFO per unit for Q2 was CAD 0.89, a CAD 0.07 increase relative to Q2 2018, and flat to Q1 of this year. Included in this quarter's FFO is CAD 0.6 million of lease termination fees and CAD 2.1 million of additional G&A expense related to the departure of the trust's former CFO. Excluding these two items, FFO per unit would be CAD 0.92.
The comparative FFO of Q2 last year was impacted by a realized $1.9 million foreign exchange loss on the remeasurement of US dollar proceeds related to sold properties in Q1 of last year, and an incremental CAD 1 million of G&A costs relating to departed executives in that year. Adjusted for these two items, FFO per unit for Q2 2018 would've been CAD 0.88. Despite Q2 2019 being negatively impacted by the temporary dilutive effect of the CAD 231 million equity offering, where proceeds have not yet been fully deployed, this was mostly offset by incremental FFO from new acquisitions net of dispositions, as well as a small net positive foreign exchange impact driven by a weaker Canadian dollar relative to the US dollar, offsetting the effect of a strengthened Canadian dollar relative to the euro.
Granite's AFFO on a per unit basis in Q2 was CAD 0.88, which is CAD 0.24 higher than Q2 2018 and CAD 0.02 higher than Q1 of this year. Included in the current quarter's AFFO are the termination fees and incremental G&A costs previously discussed, and in the comparative AFFO of Q2 2018, included are the foreign exchange loss and incremental G&A costs for departed executives also discussed. Adjusting for these various non-recurring items, AFFO per unit for Q2 2019 would be CAD 0.91, and for Q2 prior year it would be CAD 0.70, a CAD 0.21 difference. AFFO per unit was favorably impacted by a higher FFO per unit and significantly lower AFFO-related CapEx incurred in the quarter of only CAD 0.6 million, compared to CAD 6.2 million 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 properties. For fiscal year 2019, we are expecting total maintenance capital expenditures to reach approximately CAD 7 million or about CAD 2.5 million 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 CAD 3.1 million or 5.6% from the same quarter in 2018, and by CAD 3.2 million or 5.8% from the first quarter of this year. Same property NOI for Q2 2019 was flat relative to both Q2 last year and the first quarter of 2019.
On a year-to-date basis, same property NOI is up CAD 1.8 million or 2% relative to last year. The positive impact from contractual rent increases realized at the beginning of 2019 is being partially offset by the vacancy at 600 Tesma Way in Vaughan and 2100 Center Square Road in New Jersey. The impact of the 10-year lease renewal at our property in Houten, 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% for the second quarter and 2.8% year-to-date.
G&A for the quarter was CAD 1.4 million higher than Q2 of last year and CAD 0.7 million higher than the first quarter of this year. Included in G&A for this quarter are salary and unit-based compensation of CAD 2.1 million related to the departure of the Trust's former CFO in June, previously mentioned. Assuming no further fair value variances from the remeasurement of unit-based compensation liabilities, G&A on a normalized basis at this time is estimated to be approximately CAD 6 million per quarter for the remainder of the year.
The Trust's balance sheet remains very strong, comprising total assets of approximately CAD 4.4 billion at the end of the second quarter, an increase of CAD 283 million since the end of the first quarter this year, driven by the Trust's acquisition activity, partially funded by term loans drawn down in December 2018 and the CAD 231 million equity offering completed in April, as well as an approximately CAD 70 million fair value gain recognized on the Trust's investment property portfolio. Approximately half of this fair value gain is attributable to the Trust's properties located in the GTA. The increase in total assets was partially offset by a decrease of CAD 40 million on the Trust's U.S. and European investment property portfolios due to a strengthening of the Canadian dollar against those 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 six assets held for sale, comprising approximately 800,000 sq ft and an IFRS value of approximately CAD 50.5 million, contributing annualized revenue of CAD 3.6 million. Since Q1 of 2019, we added one additional property located in Toronto to the assets held for sale category. The remaining five properties are located in Michigan and are Magna tenanted. Total net leverage as of June 30th was 21%, slightly below the first quarter of 2019, which was at 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 CAD 1 billion, representing cash on hand of approximately CAD 450 million and the undrawn operating line of CAD 500 million. Net leverage and liquidity, pro forma the acquisitions and investments announced on July 18 and the completion of the disposition of the six assets held for sale, is estimated to be 27% and approximately CAD 650 million, respectively. I will now turn the call to Kevan, who will discuss the operational results and recent investment activity in greater detail.
Thanks, Teresa. As in the first quarter, I would characterize our second quarter 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 that Teresa mentioned, FFO and AFFO per unit came in ahead of Q1, despite the strengthening of the Canadian dollar since March 31st, the sale of the Iowa assets in the first quarter, and the CAD 230 million equity issuance on April 30th, 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 CAD 225 million in acquisitions, which included the Wayfair/Congebec 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 Congebec facility as part of my commentary on development momentarily. Subsequent to 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 air hub. These assets were acquired at an average going-in cap rate of 5.9% and importantly represent growth in two of our target markets in Europe and the U.S. respectively. As disclosed in the MD&A, there are five Magna tenanted assets located in Michigan that are being held for sale as at June 30th. We have negotiated a purchase and sale agreement with the buyer and expect to conclude the transaction in the third quarter.
We are also currently under PSA for the sale of the Finchley asset, which we also hope to close by the end of the third quarter. 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% and 41% respectively, putting us well ahead of schedule on our previously announced target of reduction of our Magna concentration to under 50% on a revenue basis by the end of 2019. Operationally, we have renewed 2.43 of the 2.47 million square feet of space that was scheduled to expire in 2019. Further, we have negotiated extensions on 800,000, representing 45% of the 1.8 million square feet of expiries in 2020 on an average increase in rental rate of 4.5%.
The remaining 1 million sq ft of expiries in 2020 occur in the second half of the year. We anticipate an average increase in rental rate of 7%-8% on renewal or re-leasing. Of the 386,000 sq ft of vacancy showing on the lease maturity schedule, we now have only 90,000 sq ft of vacant space related to the Novi asset in Michigan and 145,000 sq ft coming from our 600 Tesma asset in Vaughan. We are finalizing a conditional lease deal on the Tesma property with a strong credit-rated tenant for a 10-year term. We expect rent to commence in the third quarter. With that, occupancy is expected to move slightly higher in Q3.
As Teresa mentioned, and as disclosed in our MD&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 of factors that aided our growth in the first quarter and reversed or decreased in the second quarter, 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 Tesma, and we reiterate our guidance of 2%-3% for 2019. As an update on our development program, we are proceeding to the building permit and tendering phase on our Altbach development project in Stuttgart, Germany, and hope to commence construction at the site in late fourth quarter of this year or early Q1 in 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 AllPoints 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, Congebec, at our recently acquired 2095 Logistics Drive property in Mississauga to expand their premises by approximately 60,000 sq ft. The expansion is expected to cost approximately CAD 9 million 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 Congebec 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 2.5-million-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.
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. 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 you. If you would like to register a question, press the one followed by the four on your telephone. You will hear a three-tone prompt to acknowledge your request. If your question has been answered and you would like to withdraw your registration, please press the one followed by the three. One moment please for our first question. 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. 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?
Yeah. I appreciate the question. Right now, our strategy in Europe is focused on the Netherlands, Germany, and Poland. That may expand to one 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, the pricing got a little heavy for us. 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.
Just in terms of pricing, how does pricing compare in Europe with, say, North America?
I think pricing in Europe is lower than the U.S. and comparable to what we're seeing in Toronto and even potentially Vancouver. For a combination of factors. One, I think as you're aware, financing is extremely attractive and low, particularly in Germany. The spread over financing continues to be attractive in those markets. Two, 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. We believe, and I think others agree, that rental rates are going to continue to climb and climb at a more rapid pace over the next five years in those markets.
Just sticking with Europe, is there potential to make any dispositions in that market of Magna tenant properties?
We're currently working on dispositions of our Magna tenant assets in the U.K. and Spain. I think there are opportunities for a few others in Europe in 2019. I think as we've announced, we expected to sell or dispose of roughly CAD 150 million-CAD 200 million this year. I think we remain on track to do that.
Okay, great. Just two quick questions on dispositions. Number one, the Finchdene Square, what led to that decision? Secondly, in the disclosure, a tenant had a purchase 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 Finchdene, that was an asset that we had listed for lease or sale. It is in Scarborough, it is in the GTA, it is not by its criteria, not core to our strategy. We went out to market for a tenant or a buyer, it turned out that the buyer prospects were more attractive than the lease prospects. We decided to move forward with the sale, we are moving forward with the sale. On the question regarding the right to buy, we are currently in discussions with the tenant. At this point, Chris, we don't want to disclose the property, because we don't want it to prejudice the process.
Fair enough. I'll turn it over. Thanks.
Thank you.
As a reminder, to register for a question, please press the one followed by the four on your telephone keypad. Our next question comes from the line of Nana Wang with Scotiabank. Please proceed with your question.
Thank you. Good afternoon. Kevan, what do you think are the sources of NAV per unit growth going forward? Will you rely more heavily on same property and 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 rate growth is going to continue to be very strong for our sector. That will also help to push cap rates lower. For us, I think what you said is generally true. NAV growth is first and foremost going to come from same property NOI, we believe in the 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. Also, let's not forget our development program.
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 that those projects, the first phase in Houston and Dallas and Indianapolis will add roughly CAD 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. Most of that is Magna. The quality of the locations are very attractive for us. 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. As we've stated before, the goal is to maximize the attractiveness, if you will, of those assets. That means lease extensions, increasing the rents, et cetera. Once we do that, if we're successful in doing that, then we'll evaluate whether the best thing to do is to keep those assets, sell those assets, sell an interest in those assets. We'll evaluate that at that time.
I bring up the GTA component of that because these are assets we may wish to hold long-term.
Makes sense. One last question. On your previous announcement of the spec development that you're doing with NorthPoint, 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. The one in Altbach 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's 2.5 million square feet in total. We are moving ahead with the project on a phase-by-phase basis. The first phase is two buildings, 650,000 square feet. We would likely not proceed to a second phase until we have leased up substantially the first phase. That's how we would approach a project like that.
Okay, thank you. I'll turn it back.
Our next question comes to the line of Sam Damiani with TD Securities. Please proceed with your question.
Thanks very much. Kevan, you've had a busy first 12 months on the ground with Granite, particularly on the pace of acquisitions and growth. How do you see year two shaping up for Granite?
Well, it's a great question. I think 2020 will be active, but probably not as active as 2019. A lot of it, Sam, is contingent upon our disposition program. At this point, it's hard to say what exactly that looks like. 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 two, or are you thinking maybe a little lower?
I think on a long-term basis, 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. Long term, 35% to us would be the high end of the range.
Okay. Maybe just switching over to debt. You've 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? Would you do more Euro swap type deals or more traditional debt domestically?
Sam, we would obviously try and tap into the EUR market because, obviously, where the interest rates are, but we are nearly 100% hedged relative to our investment there. We always have to keep that in mind. We won't be swapping if we're not adding additional assets in Europe. I think frankly for us, 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 a public debenture, we have to be looking at CAD 250 million-CAD 300 million in an offering. Depending on our need, a term loan might suit us better and give us more flexibility. That's probably going to be our primary type of debt in the near term.
That makes sense. Okay, just one last one. The property operating costs ticked up a little higher again in Q2. How do you see that line item shaping up for Q3 and Q4 this year?
The property operating cost?
Can I get-
Yeah. Kind of the cost of carrying vacant space, I'm assuming it'll go down, but I'm just wondering if you had a number in mind.
Could I get back to you on that, Sam? I just want to make sure I'm giving you the right number.
Absolutely. Thank you. I'll turn it back.
Thanks.
As a reminder, to register for a question, press the 14. 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. 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. Just on the latest acquisitions in Columbus and the Horn Lake acquisition, they are very new properties. How would the purchase price compare to replacement cost?
I think it's very close to replacement cost, to be honest with you. Both Rickenbacker and the Memphis one have seen a tremendous amount of growth, and we've seen land values move in both those markets. I would put both those acquisitions very close to replacement costs.
The acquisition market is obviously very competitive, but are there opportunities to buy 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. 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. 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.
Then there's been a lot of M&A in this space. I know when Prologis recently bought a portfolio, they talked about selling some of that portfolio. Are you seeing 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. They'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 in the dozens. I think for us, we feel the greater value is pursuing off-market or individual assets. Obviously, we look at M&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.
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%-3% you're guiding for 2019? Should it be kind of consistent?
No, two things I would say. I agree with that. I'm pretty sure at the beginning of the year, I think we said 2%-3% for 2019 and 3%-4% for 2020. I would stick with that. The one caveat that I would point out is, we need to remember with a number of these large Magna assets, they have rent that's flat either till renewal or for five years. 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%-4% for next year.
Perfect. Thank you. That's great color. I'll turn it back.
As a reminder, to register for a question, press the one four. Our next question comes on the line of Howard Leung 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 thought 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% leverage and needed further equity to fund acquisitions and development. Based on our cost of capital at the time, it made perfect sense. 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. Just another follow-up on your comment, Kevan, about the off-market assets. Can you just maybe give some color or discuss some strategies that your team's 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. 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. 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 we do what we say we're going to do. It sounds rather clichéd, but it's the truth. I think we've built a reputation of transacting and being very honest in our transactions with people. Over time, that earns you friends and it earns you first look and at times last look at opportunities. It has brought us, in my opinion, a number of off-market opportunities which we've transacted on.
Right. Do you see that, like the funnel, like through those deals is getting more efficient, I guess, as you guys get more connections?
Yeah, I think that that's a fair comment. I will tell you, I know it looks like we've been active on the acquisitions front. We have, but we're still probably transacting on one out of 10 opportunities that we see. Opportunities are brought to us every day. 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. You don't want to waste anybody's time, and I think 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. We've done that in our markets, and so that is leading to better efficiency. We're starting to see acquisition opportunities that fit our investment criteria, and then 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 to the line of Mike Markidis with Desjardins Capital Markets. Please proceed with your question.
Hi, everybody. Kevan, just to clarify, the 2%-3% and 3%-4% same property kind of growth outlooks for this year and next, are those constant currency basis?
Yes.
Okay. 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.
Yeah.
If we think about that, then can you walk us through the contributors of growth on the other side? 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 renewals. I'm just trying to get a sense of where the growth is coming from.
Yeah. I think you're right. There was some leasing that's in downtime and free rent in 2019, which I think 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. It sounds like some leasing activity and the follow-on effect of leasing activity and burn off the free rent. I guess then going forward in 2021, 2022, 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. I think our goal would be in that sort of 4% range. Keep in mind, like I said, if you have one of a large asset like at Graz or others where you have a CPI look back, those rent lifts can be large.
Okay.
We may have the situation where we're 2.5% one year, 4.5% the next year, three. 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. Gorrie, there are no further phone questions at this time.
Okay. Thank you everyone for joining us on the call, and again for our valued 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 lines.