Granite Real Estate Investment Trust

TSX:GRT.UN

Good morning. My name is Sylvie, and I will be your conference operator today. At this time, I would like to welcome everyone to Granite REIT's First Quarter 2025 Results Conference Call. [Operator Instructions] Speaking to you today on the call this morning is Kevan Gorrie, President and Chief Executive Officer; and Teresa Neto, Chief Financial Officer. I will now turn the call over to Teresa Neto to go over certain advisories.

Thank you, operator. Good morning, everyone. 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 that could cause actual results to differ materially from forward-looking statements or information.

These risks and uncertainties and material factors and assumptions applied in making forward-looking statements or information 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 2024; Granite's management's discussion and analysis for the year ended December 31, '24, filed on February 26, 2025; and for the quarter ended March 31, 2025, filed on May 7, 2025.

So Granite posted Q1 2025 results in line with management's annual forecast and guidance, largely driven by strong NOI, favorable foreign exchange and positive accretion from NCIB unit repurchases, partially offset by higher net interest expense. FFO per unit in Q1 was $1.46, representing a $0.01 or [ 0.78% ] decrease from Q4 2024 and a $0.16 or 12.3% increase relative to the same quarter in the prior year.

In Q4 2024, FFO included nonrecurring items for the reversal of tax provisions, foreign currency gains on monetary items, capital tax savings and a negative NCI adjustment, where if excluded, FFO per unit would have been $1.41. Therefore, Q1 2025 FFO per unit is $0.05 higher relative to a normalized Q4 '24. The growth in NOI this quarter is primarily derived from strong same-property NOI growth enhanced by double-digit leasing spreads, along with the lease closeout revenue earned on a previously terminated U.S. lease and a terminated lease in Utrecht, Netherlands totaling $0.8 million.

In addition, Granite earned holdover rent from one tenant at a property in Indianapolis, where the tenant will be vacating in Q2 for $0.2 million. NOI growth was further enhanced by foreign exchange as the U.S. dollar and the euro were 2.6% and 1.2% stronger, respectively, in comparison to Q4. As has been previously communicated, in Q2, we have 2 known vacancies commencing in Atlanta and Indianapolis. These vacancies, in addition to the end of holdover rent previously mentioned and no further closeout fees to be recognized, we are forecasting lower NOI in the second quarter relative to Q1 with NOI recovering through the second half of the year, mostly as a result of re-leasing spreads on maturing leases.

AFFO per unit in Q1 2025 was $1.41, which is $0.16 higher relative to Q4 and $0.19 higher relative to the same quarter last year, with the increase in Q4 mostly tied to lower capital expenditures, leasing costs and tenant allowances due to timing of leasing turnover and seasonality. AFFO-related capital expenditures incurred in the quarter totaled only $0.7 million, which is a decrease of $10.6 million over Q4 and $0.7 million over the same quarter last year.

For 2025, we continue to expect AFFO-related capital expenditures to come in approximately $40 million, unchanged from our previous estimates. same-property NOI for Q1 was strong, relative to the same quarter last year, increasing 4.7% on a constant currency basis and 9.3% when foreign currency effects are included. same-property NOI was driven primarily by CPI and contractual rent increases across all Granite's regions; positive leasing spreads, lease renewals, primarily in the U.S. and Canada and Austria; and the lease commencement of 4 completed development and expansion projects in Canada, the U.S. and Netherlands.

For 2025, we continue to expect constant currency same-property NOI based on a 4-quarter average to come in within range of 4.5% to 6%, which excludes any potential impact from disposition activity, which Kevan will elaborate further on. G&A in the quarter was $8.5 million, which is $1.2 million lower than the same quarter last year and $0.2 million higher than Q4. The slight increase relative to Q4 includes a [indiscernible] unfavorable fair value adjustment to noncash compensation liabilities that was fully offset by the reduction in corporate restructuring costs incurred in Q4 related to the unstapling of our stapled unit structure. Both do not affect Granite's FFO and AFFO metrics.

G&A expenses that do impact FFO and AFFO were approximately $0.2 million higher than Q4, which is mostly related to the absence of a $0.5 million capital tax refund, which we recorded in Q4. For 2025, we continue to expect G&A expenses that impact FFO and AFFO of approximately $10 million per quarter or roughly 7% of revenues.

Interest expense was lower in Q1 relative to Q4 by [ $0.2 ] million, sorry, while interest income decreased by $2.4 million as compared to Q4, resulting in an increase to net interest expense. The reduction in interest expense was primarily driven by several refinancing activities previously announced. One was the refinancing of the 2025 term loan with the 2031 debentures at a lower rate, which we closed on October 4, resulting in savings of $0.5 million; the repayment of the 2024 term loan on December 19, contributing $0.2 million in savings; and the refinancing of the December 2026 term loan with our 2026 debentures at a lower rate in February, yielding net savings of $0.2 million after accounting for accelerated amortization of deferred financing costs of $0.2 million.

These savings were partially offset by a $0.7 million net increase in interest expense due to the strengthening of the U.S. dollar and the euro relative to Granite's foreign denominated debt. The decrease in interest income was due to interest earned in Q4 from the temporary investment of net proceeds of our October 29 debentures. Granite's weighted average cost of debt is currently 2.67% and the weighted average debt to maturity is 4.1 years. With Granite's next maturity window in September 2026, we continue to expect interest expense to remain stable over the next approximate 18 months at roughly $23.5 million per quarter, barring any new transactions.

For income tax, Q1 '25 current income tax was $2.5 million, remaining relatively flat as compared to the prior year and $1.6 million higher as compared to Q4. In Q1, Granite did recognize a favorable credit relating to German withholding tax reserves of $0.2 million pertaining to a prior tax year. The increase compared to Q4 is primarily due to the $1.6 million credit to current income taxes recorded in Q4, resulting from the reversal of prior year tax provisions. For '25, we are expecting current income taxes to remain at approximately $2.7 million per quarter.

In terms of our 2025 estimates, Granite is keeping guidance unchanged. Granite's current outlook does not significantly change assumptions relating to new leasing of vacant space, which continues to be projected primarily later in the second half of '25 and also reflects our year-to-date financing and NCIB activity. We continue to forecast FFO per unit within the range of $5.70 to $5.85, representing an approximate 5% to 8% increase over '24.

For AFFO per unit, we are continuing to forecast the range of $4.80 to $4.95, representing a change of minus 1% to 2% over '24, driven by the higher maintenance capital expenditures we communicated in the prior quarter relative to the prior year. Granite's forecast was updated this quarter to assume a range of U.S. dollar to CAD of 1.37 to 1.42 and a range of euro-CAD of 1.52 to 1.58. Granite will continue to provide updates on our guidance as warranted based on leasing activity and any other changes.

As far as our balance sheet, it's comprised of total assets of $9.6 billion at the end of the quarter. It was positively impacted by approximately $83.5 million of translation gains on our foreign-based investment properties, primarily due to the 4.1% increase in the spot euro exchange rate relative to Q4, partially offset by movement in the fair valuation of Granite's portfolio of a net fair value loss of $48.2 million.

Our overall weighted average cap rate is 5.4% on in-place NOI, which increased 9 basis points from the end of Q4 and has increased 15 basis points since the same quarter last year. Net leverage at the end of the quarter was 32% and net debt to EBITDA was 6.8x, which remained consistent relative to Q4 and lower than Q1 2024, primarily as a result of NOI growth.

Our liquidity is approximately $1.1 billion, representing cash on hand of about $120 million and the undrawn operating line of $946 million. As of today, Granite has $52 million drawn on the credit facility and $2.4 million in letters of credit outstanding. We do expect to repay the outstanding balance on the credit facility by the end of 2025 with free cash flow from operations, barring any other major transactions. We've continued to be very active on our NCIB. And on a year-to-date basis in 2025, we have purchased just over 1.4 million units at an average cost of $66.60 for a total consideration of $95.1 million. I'll now turn the call over to Kevan.

Thanks, Teresa. As usual, I'll keep my prepared comments brief referring, of course, to engage in dialogue during the question period. As mentioned, results for the quarter came in slightly ahead of expectations, driven probably by FX gains and onetime items as Teresa highlighted.

I also think it's worthwhile at this point to elaborate on Teresa's comments regarding FFO and NOI moderating in the second quarter. Just to say that the reduction was as expected and is due to the timing of expected move-outs at the end of the first quarter or close to it and the fact that the bulk of our renewal increases, which is a key driver of our same-property NOI growth in 2025, occur late in the third quarter, which, of course, should position us well for continued NOI growth into 2026.

As a result, NOI and FFO are expected to recover in the third and fourth quarters. And more importantly, we are maintaining our guidance on all target KPIs, including FFO and AFFO per unit, as Teresa mentioned; same-property NOI growth of 4.5% to 6%; a renewal rate of 80% to 85% on our 2025 expiries at a weighted average rate increase of 35% approximately; and committed vacancy of 95.5% to 96% at the end of the year. I should also mention once again that one should not pay too much attention to the renewal increase related to expiries in a particular quarter.

The 10% increase was primarily driven by a contractual renewal increase at one of our U.S. properties that we've actually discussed on previous calls. But as I have said, the increase can fluctuate significantly from quarter-to-quarter and does not necessarily signal a movement in the spread between market and in-place rents in the portfolio.

On that, year-to-date, the team has renewed 78% of our 2025 expiries at a weighted average increase of 48%. And as mentioned, we expect to achieve or exceed our guidance of 30% to 35% for 2025. As an update on the leasing markets, we don't yet have data on our European markets, but I can supply some key statistics in our North American markets. Dallas and Savannah led the U.S. in net absorption in the first quarter at 4 million and 3.9 million square feet, respectively, and net absorption turned positive in the GTA at just over 2 million square feet.

Vacancy rates are up in roughly half of our markets and flat or slightly down in the others, and new supply is now close to historical lows. Rental rate growth continued to be strongly positive in a number of our markets, including Nashville at 17%, Houston at 11%, Dallas and Chicago at 7% and the largest year-over-year declines in market rates occurred in the GTA and Savannah at roughly 5% and 3%, respectively.

Before I speak about strategy, I'm sure there will be questions on tariffs and the potential impact on our portfolio, which we're happy to answer and engage in a dialogue on the subject. But I did want to preface the discussion with a few comments on our portfolio, perhaps Magna specifically, and we're really focusing on the Canadian part of our portfolio.

We have spoken with several tenants of various sizes. And I think the common theme we are hearing firstly, is that there is not a firm understanding of the tariffs and their impact on businesses. And so most are continuing to operate their business in normal course and instead implementing minor changes to their operations to preempt the impact of tariffs where they can, and this particularly applies to smaller tenants.

Magna specifically, and as I think they discussed on their call, the complexity of the existing supply chain and the cost to increase or move capacity would be extremely significant and take years to implement. Conversely, we expect Magna to continue to operate their Canadian business as they have and take any necessary steps to optimize their compliance with the customer arrangement.

One last comment on our Magna assets is to highlight the fact that we disposed of all of our Magna assets that were located in secondary markets in Canada. This included Windsor and Woodstock over the past few years. Our existing Magna assets are all located in prime nodes in the GTA market, including Brampton, Mississauga, Vaughan and Milton, and we believe would remain in demand if Magna were ever to choose not to renew their lease.

I'll end my prepared comments on strategy. We now plan to be active on the capital allocation front. In addition to funding our Houston development project, as Teresa mentioned, we have repurchased roughly 1.4 million Granite units for $95 million in financial consideration, and we expect to continue to be active on our NCIB program. The team has also identified 2 acquisition opportunities in our current target markets in the U.S. and Europe, totaling roughly CAD 100 million. And to fund this potential deployment, we have identified roughly $100 million to $200 million in disposition targets in Canada, the U.S. and Europe that we will be focusing on over the next few quarters.

And on that, operator, I will open up the line for questions.

[Operator Instructions]

And your first question will be from Mark Rothschild at Canaccord.

Kevan, you gave some comments about the impact of tariffs and capital allocation strategy. I'm just curious, to what extent are you thinking about the different regions you operate in differently with what has changed in the world, particularly over the past couple of months?

It's a great question, Mark. And I don't think that tariffs are going to have, I would say, a very large view in the long term of where we're looking to invest. For example, the GTA is one of our largest single markets, if not the single largest market in our portfolio. We would like to continue to grow in this market. But I think being patient and understanding what the final view of tariffs looks like makes some sense.

And as we look out, putting our money out the door, I think we have this market in Canada, which is the target market for us. We have select markets in the U.S. and select markets in Europe. So we'll continue to monitor the situation, but I don't think tariffs themselves will have a material impact on the long-term view of assets and markets.

Okay. Great. And maybe just one more. There is a natural hedge to the foreign exchange when you have mortgages on the specific properties and there have been times when it's been very advantageous to have the debt in Europe. I'm just curious, with the currency having -- it's been maybe more volatile of late over the past year or so. Do you think differently about the way you approach hedging the income that you generate in different regions?

Mark, I don't think so. I think like we've always taken the view that we will seek out the lowest cost of debt and place debt there, and that's why we've maximized certainly our European-based debt. Europe still is our lowest cost option of about like 40 basis points relative to Canada. So I think that is sort of the main driver as opposed to trying to get a pure hedge of assets versus debt. So we'll always just seek out. The U.S. right now is much more costly than Canada. So -- and we've maxed out in Europe. So any incremental, at least today, barring any new investment in Europe, we would probably borrow in Canadian.

Next question will be from Sam Damiani at TD Cowen.

I guess just to follow on Mark's question there on the sort of geographic preferences in this new sort of post-tariff world we're in. I'm just curious, Kevan, what is the, I guess, the base assumption that you're making to not change your geographic sort of strategy at this time?

Well, I think it depends on the assets that you're looking to acquire. And if you're asking if we felt like a business was exponentially exposed to tariffs, I think we have to take that into account as we're making an investment decision, Sam. But I think as we look at long term in these markets and the viability and how they're going to perform, so say, for example, we look at Canada, do we believe that Toronto is going to -- the Toronto market is going to suffer in the long term from this and thereby the growth prospects would be lower and it would be something we wouldn't look at investing in, it's part of the decision, but I don't think we're there where we think that this market is going to be permanently damaged by tariffs.

We don't even know what exactly the end game is going to look like here. So it's something we take into account. But the point I'm trying to make is long term, we believe these markets are going to continue to perform well, and we wouldn't discount them materially because of a short-term shock from potential tariffs. If that answers the question, Sam?

Yes. No, that's helpful. And just on the guidance, there's obviously some minor moving parts here. But just curious, is there a way you can quantify the change in timing of lease-up that was sort of baked into the end result of leaving guidance unchanged?

I don't think anything really changed. We were expecting this. So I think we mentioned on the -- I can't remember if we mentioned it specifically on the last call, but when we said 80% to 85%. So we were expecting 10% -- 15% to 20% to come back. We were expecting this in the timing. And so at the end of the first quarter and early in the second quarter, we have 2 move-outs, that was expected. And the rate increases that have been baked into it don't occur until the third quarter and frankly, late in the third quarter. So this was expected, and I don't think it's -- anything's changed, and that's why we're maintaining our guidance.

Okay. Great. And just last one for me is those 2 acquisitions you mentioned, are they land or income properties? Is there any other color you can provide on those 2 opportunities?

Not too much color, but both are income-producing properties. I leave it at that.

Next question will be from Fred Blondeau at Green Street.

Kevan, just looking at your 2025 SPNOI guidance, 4.5% to 6%, can you remind us how you would qualify U.S., Europe ex Austria and Canada's expected contribution from here?

I don't think we spell that out, Fred, and I'm not going to at this time.

Fair enough. But can you tell us where do you see occupancy in the U.S. heading from here?

Maybe I should have that, but I think 95.5% and 96% overall by the end of the year, I think we would expect Canada to be around 98.5%, 99% -- 98%. We expect Europe to be in that sort of 98% to 99%. So if you do the math, I think the U.S. will probably be in the sort of 93% to 94% by the end of the year. Does that help?

Yes, absolutely. And last one for me. Just in regards to your comments on Canada, what would be your scenario in regards to larger big tenants for 2025? Do you feel like we could start seeing demand improving sometime this year? Or it would still be a bit premature, notwithstanding the tariffs, of course?

Yes. If you're talking about Canada specifically, I think it's a fair question. I think there were some large requirements that were in the market -- in the GTA market earlier in the year, and I think they were put on pause because of the tariffs. So I would say I don't think -- in the end, I don't think -- I think that those requirements will resurface. But at the end of the day, I think it's really the uncertainty around the tariffs, which is the greatest impediment right now.

So -- and I think that there will be -- I'm not sure how much opportunity, but certainly, businesses will adapt and there may be some opportunities that come out of the new regime in certain markets like the GTA. So I expect demand in the large base to resurface, maybe in the second half of this year, maybe in early 2026, once we have greater certainty on what the new rules are.

Next question will be from Himanshu Gupta.

For Q2 expected vacancies in Atlanta and Indianapolis, what is the GLA or NOI associated with these vacancies? And then when do you expect to backfill the space?

So I would just say it's roughly $750,000 in total between the 2. I don't want to get into specifics on the buildings. On one of them, we actually have a pretty active prospect on. Actually, we have an active prospect on both of those. I don't have timing for you on the re-leasing, but I would say we're encouraged by the activity on both of them. We are in discussions with a prospect on both spaces as we speak.

Okay. And then I mean, sticking to leasing -- for new leasing of the vacant space, I mean, where are we in the process? And do we still expect some leasing done in the second half of this year?

Yes. Like I said, we are maintaining our guidance for occupancy to the end of this year. And I think that's based on the activity that we are seeing right now. I mean the team is working on leases on just over 1 million square feet right now of various sizes in various markets. And so we're pretty encouraged by the activity we're seeing. And on the other availabilities, we are encouraged by the number of tours and leasing activity in general. So I would say -- I would just point to our -- maintaining our guidance for occupancy at the end of this year based on the activity that we're experiencing at our assets and our availabilities in the markets in the U.S.

Got it. Okay. That's helpful. And then I think Austria, some lease renewal got done for 2026 with Magna. Maybe can you elaborate? And any discussions with Magna on the European footprint? I mean, any facilities...

No. On 2026, it was a planned renewal. I think their notice date was in the first quarter. So that has been renewed in Austria. That's 300,000 feet. And then I think as you can see, there was an early renewal on a tenant in the U.S., 250,000 feet that I think we did a few quarters ago. So now I think we have renewed roughly 10% of our 2026 expiries, one in the U.S. and one in Europe. And the one in Europe, to your question, was a Magna facility.

And I will point out, we actually had a decent sized Magna renewal in the GTA that was exercised, I think, at the end of March. I think it was March 31 or something like that. So the 2025 expiries related to Magna and the GTA have been both -- I think both of those have been renewed.

Got it. Okay. Last question is on capital allocation. I think you mentioned disposition of $100 million to $200 million of assets. How did you select your target disposition assets? I mean, are there some certain type of assets or certain markets there? And will you consider some Magna assets as well for disposition?

I think Magna would be part of it. I don't know if it's a major part of it, but certainly a part. We have noncore assets. It's quite a list of noncore assets that everyone would have in their portfolio. When you think about it, anything that does not match your strategy moving forward, moving forward your investment strategy is probably noncore.

And so for us, we've identified -- and part of this gets back to really the use of proceeds. We've already deployed almost $100 million to the NCIB so far this year. And so we've identified clear strategic and in many ways, very accretive use of proceeds. So we could be putting $200 million to $250 million, maybe $300 million out the door this year. And so unless we decided to use our balance sheet, which is what we don't want to do really, we're willing to use it in the short term. But to Teresa's point, the free cash flow is our expectations we'll be able to pay that off in a short period of time.

So it looks like rebalancing would be the best move for us. So there's a number of assets that we feel are not core to our strategy moving forward. And I think we'll be able to dispose of, both in Canada and the U.S. and also in Europe.

And have you already put some of these assets in the market? I mean any sense of like how the pricing could shape out to be there? I mean in line with...

In the most part, we're still early days, but it's not uncommon in our sector if you have an asset that is noncore and goes vacant that you list it for sale or lease. We've done that. Like our 2 availabilities in the GTA are listed for sale or lease, I believe. And so it could depend on who services first, the new tenant or a buyer of the asset at the right price.

So that's very common in our sector. So that's one way. Another one is just looking at assets that are truly noncore or not performing well or we don't think we'll have the right return profile moving forward. Those are all assets we would identify for disposition. And listen, $100 million to $200 million, I think, is kind of our expectation. It could grow depending on the sort of demand that we see in the market. And it will also depend on how much capital and how swiftly we deploy that capital as well. So that will also impact the timing, I think.

Got it. And sorry, one just last question here. And I know you already responded on the tariff question there. Do you have any exposure to Asian 3PLs in your U.S. portfolio?

Very few. I think we've got one in Houston that I know of. So I would say it would be less than 2% of our U.S. portfolio.

Next question will be from Brad Sturges at Raymond James.

Just following on the lines of the capital recycling, I guess, as you execute on this plan, how should we think about it from like a cash flow perspective? I guess you've identified a few different uses. Would that -- the combination of the NCIB development and acquisitions, would that ultimately be neutral or accretive potentially to cash flow depending on how that sort of shakes out in terms of the allocation weightings? Or how should we think about the impact, at least initially?

I would -- I mean, we're using the line of credit as needed for the NCIB, and then we'll pay down the line of credit as capital becomes available. But in terms of -- I think where you're going, and correct me if I'm wrong, Brad, is we're selling assets at a certain yield and buying assets at a certain yield. And I'd say it this way, I'm not suggesting that it would be accretive. I think we are willing to accept some dilution to move into the markets and rebalance the portfolio in the way that we want.

We are not -- right now, as we sit here today, we do not think that this will impact our guidance. We really don't think so. And so I think that, that's a very positive story, to be honest with you, to be able to rebalance the portfolio and continue to grow the way that we are. And I think that's what gives us confidence to go through this. But I don't have a level of accretion or frankly, specific dilution to give you on that, if that's what you were looking for.

Yes. No, I think that's the question I had in terms of just maybe thinking about the interplay between the average blended cap rate exit and going in. And just maybe when you're thinking about the rebalancing and you think about what's noncore, what could go into that bucket. What -- I guess, what factors are driving that ultimate decision right now?

Well, if there are assets that are legacy or otherwise that are in our portfolio, we wouldn't buy today, those would be deemed noncore. And I think you could sort of see what those are. There also could be concentration, right? So if we are looking to potentially lower concentration in a certain market and redeploy it in a new market, that would also be a consideration as well for us.

And I think that these are all normal things. I hope other companies are talking about this, too, because we're always looking to do that. And let's -- to get back to some earlier comments, I think I've made over the years is when we first wrote the strategy in 2018, we identified key top markets -- primary markets and secondary markets that we want to be in. And we understood well that we have a cost of capital and we're limited somewhat into what markets we can go in and how much we can deploy in those specific markets.

The idea always was as we sort of grew and hopefully achieve a certain cost of capital, we would be able to continue to migrate into the primary markets. And I think where we are today is maybe we don't have the equity cost of capital to do that. But I think we have a very strong growth profile and return profile that will enable us to use rebalancing to move more into the primary markets that we're targeting and dispose of certain assets in the secondary market. So that's what we're really talking about here, and I think we have the -- a very strong growth [ drive ] with which to play with.

Next question will be from Mike Markidis at BMO Capital Markets.

I guess there was a lot of discussion earlier just on large bay requirements, GTA specifically. Kevan, I think you mentioned team working on 1 million square foot new lease pipeline today. I'm curious in the U.S., how that has changed versus maybe 6 months ago? And just given the nature of -- we've been in this environment of tenants delaying decisions, what gives you guys confidence that, that lifts by the end of this year?

I'm not sure I was talking about 1 million square footers, but just to, for example, Mike, in the U.S., obviously, there are markets we pay more attention to and monitor more closely than others. But for example, if we look at Indianapolis, last sort of market update that we did and that we went through, there are almost 50 new requirements in the market, representing 16 million feet, which is above where it was last year, so that's picking up. And of those, there are 5 requirements that we believe are at or above 1 million feet.

So they are coming back. E-commerce is coming back and returning to the market. In terms of the decision-making, I really would caution -- in our U.S. portfolio, I would really caution about tariffs causing this. Sorry, I wouldn't say this, it's not tariffs specifically. But I think in terms of uncertainty, yes, we believe it is impacting decision-making, but that decision-making was already taking a long time. And we're not seeing a -- how would I put it, we're not seeing that becoming more intense or from the tariffs.

I just think decision-making has been slow. Tenants continue to be cautious. Maybe this is another reason for them to be cautious. But activity has been strong, and we are seeing, I think, a lot more -- I wouldn't use the word urgency, but I think the tenants that we're dealing with right now, the prospects that we're dealing with have been very purposeful in terms of the discussions and negotiations that we're having with them in the U.S.

Okay. And just to clarify, I wasn't talking about 1 million square foot asset specifically. I think you had mentioned you're working on 1 million square feet of new leases. So I was curious how that compares to your pipeline of new lease discussions 3 to 6 months ago?

Right. Well, it certainly, I would say, is probably twice as high as it's been in previous quarters.

Okay. You also talked about -- just in response to the tariff question, you talked about your Magna exposure and looked at the GTA and talked about how you sold out of secondary assets and had confidence in the remaining assets. How would you think about the European footprint?

I think with respect -- if you're asking with respect to tariffs, we don't think that it's going to have -- it is having or it is going to have a big impact on our European portfolio. So I think it's a completely different story. And frankly, listening to some of Magna's comments, I think they feel that the future of the European portfolio is good. So I don't think we have -- I don't think we see the European portfolio any particular change happening with our assets anyways within the portfolio.

Next question will be from Kyle Stanley at Desjardins.

Kind of just building on Mike's line of questioning there, but can you talk about maybe how differently or similarly your tenants across the various geographies are looking at making leasing decisions today in this environment? Or would you say it's less of a geographic issue and more of the end business that the tenants in or the size of the business that's driving decisions at this point?

I think -- I would think that it's more of the latter. I think -- but to be fair, Kyle, I mean, we don't have a lot of availability in Europe. And I think our -- as you can see, our renewal rates continue to be very high. And I think definitely demand has slowed down in Europe, for example, as it has sort of in every market, but it's been steady and rent growth continues to be particularly, I think, strong on a relative basis anyway. I think it does come down to the specific business and the tenancy more than it does the geography.

Okay. And maybe just one other one. Obviously, you mentioned kind of throughout the commentary today that the lease renewals for this year really kind of are weighted towards 3Q. Can you disclose what percentage of those renewals coming online are weighted to the third quarter?

On a weighted basis, it's very much in the third quarter. Yes, and the end of the third quarter.

Okay. So fourth quarter is when we really see the benefit. Got it.

And your next question will be from Pammi Bir at RBC Capital.

Kevan, just coming back to the commentary around acquisitions and the outlook there. What's changed in your mind in terms of maybe being more active? The NCIB makes sense. But in terms of actual assets, are you seeing more opportunities, maybe some dislocation in prices in certain markets, certain types of assets? Just what can you share on that?

I would say I think we are more comfortable with pricing in those key markets today than we've been in the past few years, Pammi. And also, I think the spread between yields that we're seeing in our existing markets versus the yields in the markets that we've been targeting are probably at their lowest or close to the lowest that we've seen. But we think it's a pretty opportune time to start deploying capital in those new markets, if that answers the question.

Yes. Yes. No, that's helpful. Okay. And then just coming back to those vacancies in Atlanta and Indianapolis. Just can you comment on where the in-place rents are relative to market? And I guess at this point, it kind of seems like the commentary would suggest that these are probably more 2026 re-leasing likelihood?

It could be. Yes, I'm not close enough to the leasing decisions themselves to know what the timing of the new leases would be. But in terms of the rents, I think that these would be sort of 10% to 15% below market.

Okay. Any update on Veterans Drive in terms of the prospects there?

Sorry, say again?

Any update on the prospects on the Indianapolis properties at Veterans Drive?

I would just say that there are prospects on both. We are probably in more advanced discussions on smaller building right now than the newer one. And I would say on -- sorry, on the larger one, not the newer one, on the larger one. And on the larger one, there's been more activity for half the building, i.e., that $300,000 to $400,000 range than there has been on the entire building. And that's a little different than in previous quarters, and that could change in future quarters, but that's what we're seeing today.

Got it. Last one, just on that true value lease assumption by Do It Best. Any changes there in terms of the total space that they're taking or any of the -- any concessions made on the rent?

No, there was a minor concession in the first 2 years and sort of a recovery in later years. So the economics of the deal over the term haven't changed, a very small concession this year and next on the rent. And in terms of the square footage, no change.

Next question will be from Sumayya Syed at CIBC.

Just following up on Do It Best having assumed the lease in the quarter. Who else would you view as still being on the watch list or that you're keeping a closer eye on?

I don't think we have anything particularly on the watch list.

Not at the moment. Not really. No.

Okay. And then just, I guess, some more color on just the pace of leasing activity. It sounds like things are fairly stable. But if you look at March, April and so far in May, were there any notable shifts? And then was there a lull and then a pickup? Or has it just been constant the whole time?

I think we felt it sort of -- it felt to me like it sort of picked up in February, got quiet and now it sort of picked up again. And again, I don't really have a particular reason to point to why that is. But I would say the activity that we're seeing has been in the last -- more probably the last 60 days than anything else.

Okay. And then -- and Kevan, you spoke earlier about the U.S. portfolio being a natural hedge against Canada and the currency aside from a fundamental perspective, do you have the same view today in that you're more optimistic long term about your U.S. portfolio and would expect that to outperform Canada?

I think it would. I think that just overall, there are tariffs put in place. I think there's going to be ins and outs, and I don't fully understand what the implementation of tariffs will mean overall for business. And I don't think it's great for the economy. I'm not saying that. But for our sector, in particular, I think overall, it will drive higher demand. And I think that, that will be better for our U.S. portfolio than it would be for, say, for example, our Canadian portfolio.

There are no further questions at this time. Mr. Gorrie, I turn the call back over to you.

Thank you, operator. Well, thanks, everyone, for being on the call today. Hopefully, we'll speak to you on our Q2 call, and have a great day.

Thank you, sir. Ladies and gentlemen, this concludes today's conference call. You may now disconnect