Granite REIT: Riding the Data Center Wave to Logistics Dominance

Strong Q2 with record leasing spreads, disciplined capital recycling, and a new tailwind from data center demand.

GRT-UN.TO · Earnings Call · 2026-08-06

Operational Strength and Leasing Momentum

Granite REIT delivered a solid second quarter, with FFO per unit up 12.2% year-over-year and same-property NOI growth of 8.3% on a constant currency basis. The NOI growth was driven by strong leasing spreads of 7% and the lease-up of development vacancies, as Teresa Neto noted: “NOI growth in the second quarter was primarily driven by strong same-property performance, supported by leasing spreads of 7% and the lease-up of previously completed development vacancies in the United States, along with a favorable foreign exchange.” — Teresa Neto, Chief Financial Officer · 2026-08-06 The company renewed about 65% of 2026 expiries at an average rent increase of 21%, and management expects 20-25% on overall expiries, consistent with 2024 levels. Market rent growth remains positive across most markets, with the GTA and coastal markets lagging, but the CEO believes the mark-to-market on in-place rents is roughly "close to that" 25% level.

Capital Recycling and Balance Sheet Discipline

Granite is executing a disciplined capital allocation strategy, using the ATM program and dispositions to fund accretive acquisitions. Year-to-date, the company issued 1.4 million units for net proceeds of $138 million and closed on $210 million of nonstrategic asset sales. “we have increased FFO per unit year-to-date by almost 10% year-over-year, while reducing debt to EBITDA from 7.3x to 6.6x.” — Kevan Gorrie, Chief Executive Officer · 2026-08-06 The balance sheet is stronger: net leverage improved to 32% and liquidity stands at $1.2 billion. The CEO emphasized that the ATM program is opportunity-driven, and they are not comfortable using it at current prices. Instead, they are leveraging dispositions and free cash flow to fund new acquisitions in the U.S. and Europe, targeting low-to-mid 5% cap rates.

Data Center: A New Demand Driver

A notable theme in this quarter's commentary is the strengthening link between data centers and logistics demand. Granite's CEO highlighted that data center-related demand for logistics space is increasing, led by Texas, Arizona, and the Midwest.

Additionally, data center-related demand for logistics space continues to strengthen, led by leasing activity in Texas, Arizona and parts of the Midwest. This increase in manufacturing and data center activity is expected to drive further demand for logistics as materials and equipment continue to be positioned closer to production hubs and consumers.
Kevan Gorrie, Chief Executive Officer · 2026-08-06

This is a fresh keyword for Granite (data center appears as a top keyword for the first time), and it aligns with broader market themes seen in global tape history. The company is also seeing spillover effects in smaller bay leasing, as larger spaces get absorbed. “we are able to step into assets in these leading Tier 1 markets with strong growth prospects at yields we haven't seen in several years” — Kevan Gorrie, Chief Executive Officer · 2026-08-06 The CEO noted that data center development is competing for land and labor, making new supply more expensive, which is a tailwind for existing properties.

Outlook and Risks

Guidance was narrowed and slightly raised for FFO per unit to $6.30-6.40, and AFFO to $5.45-5.55. Same-property NOI growth is expected to decelerate through the year but accelerate in 2027. Risks include persistent high interest rates, softer demand in coastal markets, and the resolution of the HST audit provision. However, the company's strong leasing pipeline, including over 500,000 square feet of vacancies under negotiation, and its focus on modern, well-located assets position it well. The CEO's confidence in the logistics sector is underscored by the record capital formation and cap rate stability despite rising bond yields. Overall, Granite REIT is executing well operationally and financially, with a new demand catalyst in data centers that could support growth beyond traditional industrial drivers.