Granite Real Estate Investment Trust

TSX:GRT.UN

Earnings Call Transcript 2024-Q1

[Operator]

Good morning. My name is Madison, and I will be your conference operator today. At this time, I would like to welcome everyone to Granite REIT's First Quarter 2024 Results Conference Call. [Operator Instructions]. After the speaker's remarks there will be a question and answer session. [Operator Instructions]. Thank you.Speaking to you on this call this morning is Kevan Gorrie—[Audio Gap]

[Teresa Neto, executive]

--management discussion and analysis for the year ended December 31, 2023, filed on February 28, 2024. As usual, I will commence the call with financial highlights and then turn it over to Kevan who will follow with an operational update. Granite posted Q1 2024 results ahead of Q4 supported a 4% increase from Q4 2023 and a $0.05 or 4% increase relative to the same quarter in the prior year. The growth in NOI this quarter is primarily derived from the lease-commenced strong same-property NOI growth, enhanced by double-digit leasing spreads in Canada and Austria. NOI growth was negatively impacted slightly by foreign exchange as the U.S. dollar and euro were 1% and 0.1% weaker respectively, in comparison to Q4. AFFO per unit in Q1 was $1.22, which is $0.07 higher relative to Q4, and for 2024, as noted in our outlook disclosure, we are expecting maintenance CapEx leasing costs and tennis allowances to come in at approximately $28 million with part of the upward increase tied to the timing of leasing and capital expenditures planned last year that were delayed into 2024. In 2023, we had estimated capital expenditures of $25 million, but actuals came in lighter at approximately $18 million. Same-property NOI for Q1 '24 was strong relative to the same quarter last year, increasing by 4.9% on a constant currency basis and up 5.1% when foreign currency effects are included. Same-property NOI growth was driven primarily by CPI adjustments, positive leasing spreads, contractual rent increases across all of Granite's regions, lease renewals in the U.S., Canada, and Austria and includes the impact of the completed development in Tennessee, which had free rent periods in the prior year, partially offset by vacancy at certain properties in the U.S. For 2024, we continue to expect constant currency same-property NOI based on a 4-quarter average to be within the range of 7% to 8%. G&A for the quarter was $9.7 million, which was $5 million lower than the same quarter last year and $0.3 million higher than Q4. The main variance relative to the prior year's quarter is the change in noncash compensation liabilities, which generated a favorable $5.7 million swing relative to the same quarter last year. These fair value adjustments do not impact our FFO and AFFO metrics. Stripping out the fair value adjustments, G&A expenses that impact FFO and AFFO were approximately $0.3 million higher than Q4, which is mostly related to salary increases effective at the beginning of the year and the timing of expenses. For 2024, we continue to expect G&A expenses of approximately $10 million per quarter or roughly 7% of revenues, excluding any amount for fair value adjustments and corporate restructuring costs relating to the uncoupling of Granite's stapled unit structure. Interest expense was lower in Q1 2024 relative to Q4 by $1.3 million, while interest income decreased by $3.1 million as compared to Q4. The decrease in interest expense was primarily due to the elimination of double interest costs related to carrying both the 2023 debentures and 2029 debentures for a 6-week period in Q4. The decrease in interest income was the result of the interest income earned in Q4 from the investment of the net proceeds of the 2029 debentures during the same 6-week period last year. Therefore, on a net basis, relative to Q4, net interest costs increased by $1.8 million, which really represents the full quarter effect of the higher cost 2029 debentures. Granite's weighted average cost of debt is currently 2.6% for 2024, given that we have no debt maturing until December, our interest expense run rate is expected to remain at current levels of approximately $21.5 million per quarter, which will be offset by some interest income of approximately $1.5 million per quarter. For income tax, Q1 current income tax was $2.5 million, which is $0.2 million higher than the prior year and $2.4 million higher as compared to Q4. In Q4, we recognized the reversal of tax provisions of $1.8 million that were not present in Q1. The majority of the remaining increase is a direct result of the higher revenues and the burn-off of [ PI ] amortization expense in Austria relating to the gross lease renewal, which commenced on February 1, increasing taxable income in that region. For 2024, we are expecting current income taxes to remain at current levels of approximately $2.5 million per quarter. And then looking out to our 2024 estimates. FFO per unit, our guidance remains unchanged from last quarter and remains in the range of $5.30 to $4.45, representing approximately a 7% to 10% increase over 23. For AFFO per unit, we are adjusting downward our forecast by $0.05 to a range of $4.60 to $4.75, representing an increase of 2% to 6% versus 2023. The downward adjustment is reflective of the higher maintenance CapEx and leasing commissions and tenant allowances mentioned earlier. We have not made any changes to our FX rate assumptions from last quarter. Granite will provide updates to guidance each quarter as warranted based on leasing activity executed to date. Granite's balance sheet comprising of total assets of $9.2 billion at the end of the quarter was positively impacted by approximately $13 million of fair value gains on Granite's investment property portfolio in the first quarter and was further enhanced by $117 million of translation gains on Granite's foreign-based investment properties, primarily due to the 2% increase in the spot USD exchange rate relative to Q4. The fair value gains on Granite's investment property portfolio were primarily attributable to the stabilization of the development property in Branford, Canada, which was completed and transferred to income-producing properties during the first quarter, partially offset by the expansion in discount and terminal capitalization rates across very selective granted assets due to market conditions. The trust's overall weighted average cap rate of 5.2% on in-place NOI increased only 2 basis points from the end of Q4 and has increased 25 basis points since the same quarter last year. Our net leverage as of the end of the quarter was 32% and debt-to-EBITDA was 7.2x, which is slightly lower relative to Q4 and lower than Q1 as a result of the NOI growth, including the completion and stabilization of the majority of Granite's development properties. Our current liquidity is approximately $1.1 million, representing cash on hand of $130 million and an undrawn operating line of $997 million. As of today, Granite has no borrowings under the credit facility, and there are $2.8 million in letters of credit outstanding. As noted in our disclosures on March 27, Granite extended its credit facility for a new 5-year term to March 31, 2024. And then finally, subsequent to the quarter, Granite repurchased 375,600 stapled units under its NCIB at an average price of $69.39 for a total proceeds of $26.1 million, excluding commissions. I'll now turn over the call to Kevan.

[Kevan Gorrie, executive]

Thanks, Teresa. And I'm joined by Michael Ramparas and Lorne Kumer, as usual, but Lawrence is on the phone this time calling in from the U.S. Certainly, an in-line and strong quarter as NOI growth of $4.5 million over Q4 more than offset the increase in interest expense, as Teresa mentioned, resulting in a healthy 4.8% increase in FFO per unit over Q4 when excluding the reversal of the tax provision in that quarter. As Teresa mentioned, we lowered our AFFO guidance by $0.05 to adjust for additional CapEx that was originally budgeted to occur in 2023, but we are reiterating our full-year guidance for FFO per unit and same property NOI growth. I'll begin with a brief update on our current development pipeline. As stated in our MD&A, our 409,000-square-foot build-to-suit project for [ Kalbom ] moved to IPP in the quarter. Our 50,000-square-foot expansion in Ajax remains on schedule for substantial completion by or near the end of the second quarter. Similarly, the 52,000-square-foot expansion of our property in where the Netherlands remains on schedule to date for substantial completion in the fourth quarter. As a reminder, all projects are expected to achieve certification in accordance with our published Green Bond framework, and in addition to the projects as discussed we have roughly 160 acres of land remaining for development in Branford, Houston, and Columbus, which could accommodate up to 2.4 million square feet of space once constructive. As outlined in our press release and MD&A, the team achieved an average increase in the rental rate of 10% on renewals for roughly 6.4 million square feet of leases that expired in the quarter, driven predominantly by the gross renewal increase. And I did want to say just based on comments that we've received regarding renewal increases moderating. Just to point out that renewal increases in each quarter will fluctuate and they can fluctuate quite significantly. And so I wanted to emphasize the team also executed 1.3 million square feet, and 1.36 million square feet of renewals in the quarter associated with leases which were due to expire later in '24 and '25 at an average increase in rental rate of 35%. So you will see those increases flow through in future quarters. With respect to our 2024 maturities, we have now renewed $7.8 million or 79% of our 9.8 million square feet of maturity at an average rate increase of approximately 16%, again muted by the gross renewal. And as stated on our last call, we expect to renew 85% to 90% of our 2024 expiry. As Teresa mentioned earlier, the same property NOI increased by 4.9% in the quarter on a constant currency basis, slightly above Q4 and in line with expectations for the quarter. NOI was positive across all of our geographies on a constant currency basis, led by Canada at 11.3%, driven by renewal increases. Same property NOI across our U.S. portfolio posted same-property posted an increase of 3.2%, down from Q4 as a result of vacancy and partially offset by strong renewal spreads. Of note, Austria finally carried some of the load and posted a modest 3.6% increase by virtue of the grass renewal. As you can see from our disclosure, we adjusted cap rates and market rents nominally in the quarter based on appraisal and relevant transaction data at our disposal. And excluding the 2.5% strengthening of the U.S. dollar from December 31 to March 31, the increase in IFRS value was driven primarily, as Teresa mentioned, from the stabilization of our brand redevelopment. As for a general market update, leasing activity continued to be slow in the first quarter as higher interest rates and economic uncertainty continue to impact tenant activity broadly across the sector. On a comparative basis, our markets once again represented the majority of the top markets in the U.S. for NAV absorption, totaling roughly 21 million square feet for the quarter, which was similar to Q4 and representing well over half of the total U.S. absorption in the quarter, led once again by Dallas, Chicago, Houston, and Atlanta. Our portfolio markets, which experienced negative net absorption included Cincinnati, Memphis, Indianapolis, and Columbus, but all with less than 0.5 million square feet in total and the GTA at negative 2 million square feet, once again our worst-performing market for net absorption. As for rental rates, Nashville, Atlanta, and Columbus all saw positive rent growth over Q4, while rental rates fell between 1% and 2% from Q4 across our remaining markets. We do not have relevant Q1 market data for our European markets yet, but our view at this time would be that the current pace of leasing activity in Germany and the Netherlands would be comparable to our North American markets, but that rent growth continues overall to be positive. It is probably worth noting at this point that we have renewed just under 90% of the 950,000 square feet of 2025 expiring leases in Europe. The team also executed 300,000 square feet of new leases in the first quarter on our development properties in Houston, Nashville, and Asia at rates that slightly exceeded budget for 2024, but also notably represented an increase of roughly 40% over our development profile.As Teresa mentioned, and I do feel like I'm repeating myself here, we opportunistically utilize available cash on hand to purchase roughly 375,000 units at an average price of $69. As you know, unit buybacks are not our first choice for capital allocation, but we won't hesitate to capitalize when a unit price is that far below NAV, and we have sufficient cash on hand. In closing, our results were in line with expectations. NOI and cash NOI increased once again this quarter, and our liquidity position remains very strong at roughly $1.1 billion in cash and available credit. I think it's worth noting as well, our NOI has increased over 12 consecutive quarters at an average growth rate of 3.3% per quarter and almost 14% annually over that 3-year period. So addressing our current availability on remaining 2024 maturities and preserving capital for future strategic opportunities remain our highest priorities, and we remain well positioned to deliver attractive NOI FFO and AFFO growth once again in 2024. But before I open up the call for questions, I'd like to ask Michael Ramparas to provide an update for you and our views on the investment market.

[Michael Ramparas, executive]

Thank you, Kevan, and good morning, everyone. With the macroeconomic uncertainty and the preceding rising rate environment, fires and investors like to approach industrial and warehouse property deals with more scrutiny and caution, which has impacted leasing and investment volumes at activities. For the past 16 months, we have seen pricing contracts across our markets to varying magnitudes dependent on factors such as market dynamics, asset quality, and embedded rental growth. More recently, we have been encouraged as there has been an increased demand and in fact, are seeing some deals in the market achieved strong pricing, especially for high-quality assets with near-term mark-to-market rent opportunities for which are priced at attractive discounts to replacement costs. These deals are seeing deep bidder lists at times in excess of 20 groups, which implies a significant amount of opportunistic capital in the market looking for quality deals. The buyer flow remains largely private capital, such as close institutional bonds, private equity, sovereigns, high net worth private, and conversely, many of the REITs, open-ended funds, and generally leverage buyers have been quiet due to higher weighted average cost of capital. Our team continues to underwrite and has reasonably pursued select opportunities in our target markets. Some fundamental teams have emerged recently to be an increased focus on yield and buyer shine away from longer-term negative lender trades. Groups are rightly looking to see more positive returns sooner rather than later. In terms of deal size, we continue to see small to midsized deals having the most volume and liquidity in the marketplace. We also are encouraged on the debt side as we're starting to see debt liquidity reemerge from namely life companies and more recently, bank lenders participating in capital stack on the institutional quality assets in Boles. If this trend continues and the availability of this debt improves, it will likely bode well for the investment market and pricing. As we look forward to the balance of the year on the investment side, we will continue to focus on opportunities that will complement our current portfolio of high-quality assets and remain prepared to transact on the right deal. And in the case of weakening fundamentals, we will also look to capitalize on any disruption or electing our projections that may arise. With that, I'll pass it back to Kevan.

[Kevan Gorrie, executive]

Thanks, Mike. So operator, at this point, we'll open up for questions.

[Operator]

Thank you. [Operator Instructions] Your first question comes from the line of Sam Damiani with TD Cowen.

[Sam Damiani, analyst]

First off, just wanted maybe to continue on the topic that Mike was just discussing. And I guess, just the question really is, with the transaction market starting to percolate, others are starting to deploy capital, what is it the grants waiting for in order to sort of participate -- like is there a different sort of macro view that you're expecting over the next year or 2 versus some of these players? I'm just wondering what you guys are thinking in terms of when to pull the trigger and how.

[Kevan Gorrie, executive]

Well, I'll start and certainly invite Mike to build on whatever comments he has. I think we have to be aware of our capital situation, Sam, to be honest with you. Like we've said, if there's something that's truly compelling an opportunity in our target markets, I don't think we would hesitate to transact on it, and we would figure out a way to whether it's selling assets, we would figure that out. But we haven't seen anything that's really that compelling. And again, I'll ask Mike to provide his comments on that specifically. But we also have to be aware that we have cash on hand, we have development commitments. I don't think we're interested in taking on a significant amount of additional debt to fund those acquisition. So there are constraints there from a financial perspective that we have to be aware of. But Mike, anything you want to say on the markets.

[Michael Ramparas, executive]

No. Like I said in my commentary, we are pursuing select opportunities. Again, as happened the deals, we find very attractive. A lot of other players do as well, too. So at the pricing that we would be looking to transact the opportunities aren't there at the moment. I think to the Kevan's point preservation of our capital situation is always paramount with us.

[Sam Damiani, analyst]

The other question I wanted to ask, and then I'll turn it back, is just on the very modest tweak to the same property NOI growth guidance. I guess I'm kind of curious why you kind of bothered to do that. It seems like it's a small thing, but is it mostly related to just delays on the leasing that you referred to in your opening comments? Or is some of it also related to the rents that you expect to realize on that lease-up?

[Kevan Gorrie, executive]

No, not rent, just the timing of release. I mean it's a good question. We actually discussed internally whether it's worth doing now. We just fell. We didn't think it would be that. We thought it was worth just pointing out that we've extended the estimated lease-up of a couple of our availabilities and tweaked it a little bit. But no impact on rental rate.

[Sam Damiani, analyst]

Okay. And I think last quarter, you gave a range of targeted occupancy in the portfolio for the end of the year. How much has that differed today?

[Kevan Gorrie, executive]

It has not. And again, I think with respect to occupancy, particularly, I think it's early to tweak it. So we have $1.9 million. Let's take your track out of it because we have, I think, 150,000 short-term leases that continually roll there. So taking that out of it, we have roughly $1.9 million of expiries remaining. We expect to lease up probably around $1 million to $1.2 million of that. So we would expect to see 700,000, 800,000 square feet of space come back to us. We are 95.4% occupied and committed. So overall, that would require us to complete another 1.3 million to 1.5 million square feet of leases before the end of the year. And we think that that's entirely achievable. Now is it a certainty? Absolutely not. But we think that it's achievable and it's within our expectations. So for now, we don't see a need based on the activity that we're seeing within our portfolio, and a bit of a pickup in the activity we're seeing overall in the markets and in our markets, in particular, that is necessary to move that guidance for profiting.

[Operator]

Your next question comes from the line of Mike Markidis with BMO.

[Michael Markidis, analyst]

Kevan, just a quick one for me. I guess you had pointed out, and I agree with your point, one quarter doesn't make a trend on leasing spreads. But you pointed out, I think during the quarter, there were 1.36 million square feet of leases, I guess, for fires in late '24 and '25 that were done at an average rate of 35%. Is that all? How do we read that? So I'm just looking at your lease maturity schedule in our MD&A. And I see that your committed rate for '24 went up. I guess you're at another 500,000 square feet there, but I don't see anything in 2025. So is that like sort of also including subsequent quarter activity that's maybe not reflected?

[Kevan Gorrie, executive]

No. The one was done in the quarter, it was the large one in the Netherlands that should be in there for 2025.

[Michael Ramparas, executive]

It depends, although if it didn't roll this quarter, it may not be showing. But I have to look at the -- specifically what we're looking at.

[Kevan Gorrie, executive]

Yes. So there was a large one in the Netherlands. There was 2 in the U.S., and there was one in the GTA.

[Michael Markidis, analyst]

Okay. Yes. So I guess some of that maybe isn't being reflected. Okay, that's fine. I can circle back offline on that. And just to confirm, the 35%, that's not -- is that just a pure renewal number? Or is there the new leasing that you would have done because there are 270,000 commitments on vacant space that you do show.

[Kevan Gorrie, executive]

No, that's the pure renewal. Those are 4 renewals Yes. And not confusing, Mike. We've talked about this before. You're talking about renewals. You actually executed in the quarter, you're talking about renewals related to the expiries in that quarter. So in the press release, we try and keep it really straightforward. It's just renewals that are expiring in that quarter. So I almost hesitate to talk about renewals that we're doing that relate to future expiries. But I just wanted to make that point because we did receive some comments asking why the renewal increases were falling. And everyone understands it grows, the 10% will impact that number within this quarter. But I just wanted to make that point and emphasize that there will be a fluctuation in the renewal increases, obviously, from quarter to quarter, and it can be quite significant, as you know.

[Michael Ramparas, executive]

Yes. Okay. I mean I'm not sure about the hesitancy, maybe I'm missing something, but I think going forward, it would be useful to talk about both the leases signed and then places that commenced, I think that'd be really right.

[Operator]

And we will take our next question from Kyle Stanley with Desjardins.

[Kyle Stanley, analyst]

It was encouraging that the outlook really didn't change too materially since we last spoke, especially just given some of the commentary out of your U.S. peers earlier this earnings season. Just curious, if you take a step back, high level, what are you seeing from a supply-demand perspective in your portfolio-specific geographies that gives you that comfort in the outlook and is maybe differing from what some of your peers may have disclosed?

[Kevan Gorrie, executive]

Well, I think, first of all, the U.S., some of the commentary we've heard out of the U.S. REITs for the first quarter is consistent with what I've been saying for 3 quarters, a slowdown in leasing activity. So I don't listen to all the calls and on that specifically, but just reading some of the commentaries. I think we've been very straightforward about what we've been seeing in the markets for a number of quarters. So when we went into 2024, I think we were quite realistic with our expectations on the leasing side. I won't use the word conservative because we've tweaked some of the timing. But I think that we were more realistic than some on what we were expecting for 2024. Why I remain confident that we can execute on $12 million to million,$12 million to $1.5 million of leasing is just based on activity that we're seeing within our portfolio. Again, there's no certainty about it, but we are responding to RFPs or we're moving paper. We're in discussions on roughly 1.2 million square feet of space within our portfolio. And again, I'm not saying that will be executed and certainly all of those won't be executed. But the point is we are seeing decent activity and even on our stuff on our big availabilities. So it's very much, I think, within our expectations that we'll see future leasing activity this year in 2024.

[Kyle Stanley, analyst]

Okay. Great. Maybe 2 just quick questions. Teresa, I think you mentioned some potential costs on the kind of the restructuring side. Just wondering if you have an idea of what that might be and the timing of that flowing through.

[Teresa Neto, executive]

It's going to be hard to estimate because it's really all legal time, but the heavy load's going to happen in Q3. For sure, Q2, Q3 will be probably a more significant amount. I don't know, we're kind of estimating maybe $1.5 million to $2 million. And then -- so Q2, Q3, Q4, but I'd say Q3, probably the heaviest quarter. But we'll be scrubbing that out as you see in the schedule.

[Kyle Stanley, analyst]

Fair enough. And then the last question, just on the brand for delivery this quarter. Just wondering on the timing of the delivery and maybe how much NOI was generated this quarter just for modeling purposes going forward.

[Kevan Gorrie, executive]

I think we've got NOI at $7.7 million annually. Yes. Hopefully, that helps. I think it's $7.7 million annually. By the way, [indiscernible], which I'm wrong. We'll clear enough if I'm wrong.

[Operator]

Your next question comes from the line of Brad Sturges with Raymond James.

[Bradley Sturges, analyst]

Just wanted to follow up on the acquisition commentary. I think last call, Kevan, you talked about maybe the potential for some distressed opportunities to arise in the coming months. Just curious to get updated thoughts on whether that's something you still think could be the case and kind of what you're seeing from that perspective today.

[Kevan Gorrie, executive]

I mean, we keep talking about it. I think we still expect to see some level of distress. I think every quarter we go through, I think our folks of finding that unicorn are falling, to be honest with you. And I did your commentary from a U.S. industrial REIT saying that they had gotten a number of calls to the distressed development deals. Those are certainly on our radar. I don't think we have seen it, not that they haven't. They probably have seen things that we haven't seen. But I think -- yes, we still expect to see opportunities out there through distress. We have not seen anything that's really compelling yet today, Brad.

[Bradley Sturges, analyst]

Okay. So I guess, near-term capital allocation, if you're deploying capital, it sounds like the core stock prices and CIB is probably going to be at least a use of some cash proceeds in the short run.

[Kevan Gorrie, executive]

Yes. In the short term, I don't think that we'll be that busy on the acquisition side in the first half of the year.

[Bradley Sturges, analyst]

Yes. And maybe just one last one, just on the leasing side of things. In terms of your broader discussions and particularly with existing tenants in the portfolio, how is the appetite for expansion opportunities in the portfolio? Are you seeing any improvement or indicators that that's starting to tick up?

[Kevan Gorrie, executive]

I don't know if it's ticked up, but I don't know if it's ticked down either. I think we're in discussions with a few tenants on potential expansions. Again, I think they're taking longer to explore their options and make financial commitments. So we're in discussion with them on in the U.S. on an expansion, and we're in discussions with one in the GTA, and we're in discussions with one in Europe. And that, I think, has been pretty steady over the years in our portfolio. So I don't think that has ticked up. I don't think it has ticked down.

[Operator]

Your next question comes from the line of Himanshu Gupta with Scotiabank.

[Himanshu Gupta, analyst]

So just on the Indianapolis, the Avon property under lease-up, what kind of response you have received so far? And I mean, are there a lot of products you are competing with or leasing demand is a bit less in that size of category?

[Kevan Gorrie, executive]

No, I think the first -- or maybe it was the fourth quarter, I think we saw more activity on the smaller one than the larger one. I'd say most recently, we've got more activity on the larger ones. We are responding to RFPs. And I think I don't want to provide too much detail, but I think the sort of modern characteristics of our building and location has put us on your list that many others aren't on. So we seem to be captured by all RFPs by virtue of the location and just the characteristics of the building. So that's the way I would characterize it. Right now, as we sit here today, there's more activity on the larger building than there is in a small one.

[Himanshu Gupta, analyst]

Okay. And then looking at the activity, I mean, it looks like progress was done on Nashville and Houston. And do you think the next will be in U.S. or maybe Memphis or Nashville?

[Kevan Gorrie, executive]

I mean that's tough. I definitely would agree, I think we've got more activity in Houston and Nashville. I would probably put in the after that and then Louisville and Memphis or Memphis and Louisville. So she is a great to a degree. But you're right. I think Houston and Nashville, there continues to be a lot of activity in those markets. In general, I think they are stronger markets. In India, we are seeing more activity in the larger building, which is encouraging to us and e-commerce users. And then Louisville and net is behind that. Not to say they're bad, I mean the net absorption continues to be positive, I think, but not as strong as the other markets.

[Himanshu Gupta, analyst]

Got it. And would you say Mattress is probably the toughest market in your portfolio right now?

[Kevan Gorrie, executive]

I don't know. I mean, 600,000 feet of vacancy. We're in discussions on 300 of it right now. I don't think. I wouldn't use the word tough.

[Himanshu Gupta, analyst]

Okay. Fair enough. And then the broader comments around the leasing activity pick up in the U.S., do you still think we will see a second-half recovery? Or is it getting even pushed out?

[Kevan Gorrie, executive]

I don't know if I said it would be a 2024 recovery. I think we feel that the 2025 recovery. I think 2024 is going to remain competitive through the year would be my information.

[Himanshu Gupta, analyst]

So in that case, the peak vacancy is more likely to be back half of the year or probably early next year in that case.

[Kevan Gorrie, executive]

Yes, I agree.

[Himanshu Gupta, analyst]

Okay. Fair enough. And maybe just one last question I had. Yes, on the valuation, and I know you have already provided some comments. Any specific comments related to the cap rates you're seeing in your U.S. portfolio? What kind of capital are we talking like 6s, 5s, or even high 6s? Any comment there?

[Kevan Gorrie, executive]

No, I mean, I think you see our overall cap rate. It depends on the product. I think everyone saw recently the deal involved with DRA, and I'll provide a few comments on that with respect to our valuations, and then Mike is closer to it than I am, but you have a portfolio, a significant sized portfolio and a significant deal with Brookfield being the buyer at $89 or $90 a foot on average, but these are older assets. And I don't think they're comparable in terms of quality to our portfolio. I don't think anyone would say that. And also, the one thing that struck us, I think everyone we've spoken to is quite surprised that the deal wasn't broken up. That was transacted as a single portfolio and you would have to. And I think everyone would agree a portfolio discount somewhere around 5% would probably apply to that because it was taken down as a single portfolio in as many geographies as there were. So I think the pricing that we saw and I've seen a 6 cap from around, I think would be supportive of where our cap rate is for our assets in those markets. And I think the final thing I would say is, and it made us actually look at it a little bit too. One of the things that it doesn't sound like it's a big impact, but there are a couple of assets in our portfolio that can skew the per square foot. And the one of them that jumps to mind for me is the Carvana site in South Dallas that we own. And that's a 200,000-foot building on 188 per site. So the price per square foot is very high at $3.15 or $3.20 a foot, and that use our first square foot number. And it doesn't reflect the average price that we have, which is well below $90 for our portfolio in the U.S. So I hope that answers the question on cap rates, but I do think there's a discussion around this DRA transaction, which I think fully supports our IFRS values in the U.S.

[Operator]

Your next question comes from the line of Matt Kornack with National Bank Financial.

[Matt Kornack, analyst]

Just looking at your free cash flow profile, you actually are adding to your cash balance pretty much every quarter between now and the end of our forecast period. Should we expect that you continue to kind of pick away on the NCIB? I mean, you don't have any debt maturities, but nothing drawn on the facility, so you can't necessarily pay down debt immediately? Or should we just expect that your cash balance is going to kind of continue to move higher?

[Teresa Neto, executive]

We definitely did pick away at it. Obviously, as we use the $26 million. So assuming if our unit price obviously falls, as Kevan mentioned, the low levels that are still significantly below NAV, we will pick away with free cash flow. But the reality is it builds slowly every month.So yes, we do have some capacity to continue to do that, but not on a large scale. And then, yes, we'll accumulate some more cash and then we can apply some of that to the end of the year when our term loan matures. So I think that's kind of like how we see it running through the rest of the year. In the meantime, any excess will invest, right? We'll invest at above 5%.

[Matt Kornack, analyst]

Right. And Kevan, would you entertain for some of the projects that you already have kind of in process developing at this point? Or are you holding off until market demand returns again?

[Kevan Gorrie, executive]

Yes. I think on a speculative basis, there's nothing that we're looking at doing. I know in the MD&A, and I think we actually combine land held for development, now it's all properties under development, and we are moving through the application and approval process for branded at AB Houston. The point is not to move ahead on a speculative basis is just to be ready to respond to any build-to-suits that are appropriate for us. And that's the other thing too, that Teresa mentioned, there are things that are on our mind with respect to the use of cash and proceeds. One of the during the venture this year. There is the NCIB potential, and there are also remaining development commitments and future development commitments, which could include build-to-suits as well. So these things are on our minds. But right now, no plans to move speculatively on any of our remaining land. And I think that will be the case through the year. Again, we'll respond if there are interesting build-to-suit opportunities, but otherwise no. Not at this time.

[Matt Kornack, analyst]

Makes sense. Just looking at your top 10 tenants, the only one that stands out is CEVA having a 0.8-year maturity. Is that a '24 or '25 maturity? And give any color as to what would happen there potentially?

[Kevan Gorrie, executive]

It's actually at the end of the year as well. No color at this time, and we certainly don't want to -- we're in discussions on both spaces with them. So we don't want to tip our hands in any way on those.

[Matt Kornack, analyst]

And then just back to Kyle's question. I don't know if you answered the timing, would the full quarter impacts have been felt like -- or is it kind of in straight-line rent and then we'll transfer over to--

[Teresa Neto, executive]

Yes, they're trailing rent numbers in the first quarter, yes.

[Operator]

[Operator Instructions] Your next question comes from the line of Pammi Bir with RBC Capital Markets.

[Pammi Bir, analyst]

Kevan, I just wanted to clarify your comments on the occupancy, and I think it was roughly that 97% target that was cited last quarter. Is that a committed figure that you expect to sort of become cash-producing next year? Or do you think you can -- will that translate actually into cash flow or income in 2024 towards the end of the year?

[Kevan Gorrie, executive]

That's a good question, Pammi. No, that would include cash in 2025. So you're right, that would be, I guess occupied and committed to be fair.

[Pammi Bir, analyst]

Okay. And then just not to nitpick here, but on the in-place side, where do you see -- I mean, it's nice to see a bit of progress after the quarter on some of the U.S. leasing. Does that get to like 96-ish or kind of hold that where it is as it may, I guess?

[Kevan Gorrie, executive]

No, I think that 96% is fair. And I'm not sure -I mean there's entirely a chance that we see rent this year as well. But I think if you assume 96-ish place, I think that would be fair.

[Pammi Bir, analyst]

Okay. Got it. And then just sticking with the U.S. leasing. I'm just curious, have you changed the strategy at all on some of the deals that you have been able to execute more recently? Obviously, you did change some of your maintenance CapEx and TI assumptions, but have there been any changes at all in terms of maybe what you're offering from an incentive standpoint, free rent, or anything of that nature?

[Kevan Gorrie, executive]

No. I think 2 things I would say about that is, again, the increase in the CapEx was because of stuff from 2023 when we scrub the numbers and realize it's not as though we're doubling TIs on our new leases and renewals. So we're not -- just to be clear on that, that's about carryover from the previous year. That's why the increase. With respect to TIs and free rent on deals, we are always open and willing to respond to market conditions and do whatever we have to do to execute on these deals. But that being said, the deals that we have done so far this year and the deals that we are working on, we have not seen a material movement from our budget assumptions for TI. And I don't want to get into details of the TI that we're assuming because we're in discussions with tenants on them and brokers as well. But there has not been a major change in TIs and free rent periods from our expectations for 2024 so far. But if those conditions change, we will respond accordingly to execute on those deals.

[Pammi Bir, analyst]

That's helpful. Last one, just on the lease that was done in Nashville, I think it was one of the main properties, which property was that of the 3 that are there?

[Kevan Gorrie, executive]

Yes, I think it's the back one. One of the back you remember, I can't remember the building.

[Operator]

Your next question comes from the line of Sumayya Syed with CIBC.

[Sumayya Hussain, analyst]

I wanted to ask about the brand for development and the lease up there. Just wondering if you can share what was the free rent period included with that lease. And also, what's the standard you're seeing being offered in the GTA market more broadly these days?

[Kevan Gorrie, executive]

Yes. I think it's a 4-month free-rent period, Sumayya. So that will run into April and then we'll be cash from April 15 onwards, more or less.

[Sumayya Hussain, analyst]

Okay. And then just switching to the demand side. I guess if you could qualify in terms of by industry vertical or user type, where would you say there's the most hesitation or delay in terms of making a decision today?

[Kevan Gorrie, executive]

In terms of future development?

[Sumayya Hussain, analyst]

Or just addressing current vacancies and the types of users and who is doing the most versus whose demands haven't changed?

[Kevan Gorrie, executive]

It's tough. I mean, 3PLs are still carrying the day as far as we can see. It sounds like in the U.S., anyway, the automotive has been active, food has been active, pharmacy has been active. I think these are things that continued from last year. And e-commerce is starting to come back, and we're seeing them more and more in our markets, not that they have done leases that we're aware of anyway, but we're starting to see activity, they're starting to underwrite space more than we've seen certainly in 2023. And that is good for us, too, because it typically involves larger space. So I'm not sure that's the color you were looking for, but that's kind of what we're seeing on the ground so far this year.

[Operator]

There are no further questions at this time. I would like to turn the call back over to the presenters.

[Kevan Gorrie, executive]

Okay. Well, on behalf of the trustees and the management team here at Granite, thank you for participating in the call today, and we look forward to speaking with you again in August. Have a good day.

[Operator]

This concludes today's conference call. You may now disconnect.