Granite REIT's (GRP.U) CEO Michael Forsayeth on Q4 2017 Results - Earnings Call Transcript

Granite REIT (GRP.U) Q4 2017 Earnings Conference Call March 2, 2018 8:30 AM ET

Executives

Michael Forsayeth - Chief Executive Officer

Ilias Konstantopoulos - Chief Financial Officer

Analysts

Michael Markidis - Desjardins Securities Inc.

Troy MacLean - BMO Capital Markets

Sam Damiani - TD Securities

Howard Leung - Veritas Investment Research

Neil Downey - RBC Capital Markets

Pammi Bir - Scotiabank

Operator

Good morning, ladies and gentlemen, and welcome to the conference call of Granite REIT. Speaking to you on the call this morning is Mike Forsayeth, Chief Executive Officer; and Ilias Konstantopoulos, Chief Financial Officer.

Before we begin today’s call, I would like to remind you that statements and information made in today’s discussion may constitute forward-looking statements and forward-looking information, and that actual results could differ materially from any conclusion, forecast or projection.

These statements and information are based on certain material facts or assumptions, reflect Management’s current expectations, and are subject to known and unknown risks and uncertainties. These risks and uncertainties are discussed in Granite’s material filed with the Canadian Securities Administrators and the U.S. Securities and Exchange Commission from time to time, including the Risk Factors section of its annual information form for 2017 filed on March 1, 2018.

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 audited combined financial results and management’s discussion and analysis for the year ended December 31, 2017 for 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 Friday, March 2, 2018. I would now like to turn the call over to Mike Forsayeth.

Michael Forsayeth

Thank you, operator. Well done. It’s a quite a mouthful and thanks for everyone’s patience for listening to that. The – with me here today is Lorne Kumer, our EVP, Head of Global Real Estate; and Ilias Konstantopoulos, our CFO, who will be taking you through some of the details of our financial results in a couple of moments and also, Mike Ramparas, our VP of Asset Management.

At $0.89 of FFO, we’re pleased with our results for the quarter, as they were a little better than we expected. The better results were largely due to a more favorable foreign exchange rates, in particular, the euro and not having to incur $1 million withholding tax payment that we previously thought might be required in the repatriation of cash from Europe to fund the three property portfolio acquired at the beginning of October. Kudos to our tax team for finding a better way. Ilias will provide you with additional details on the financial results of the quarter shortly.

Turning to some recent events and the year as a whole, fiscal 2017 was another successful year, as Granite delivered a strong financial performance and made significant progress towards its long-term strategic objectives to build a high quality and globally diversified industrial real estate business, grow and diversify our asset base through acquisitions, development and dispositions, optimize our balance sheet and reduce our exposure to Magna and the special purpose properties. It was also a year of transition and significant change in leadership that will set the course for the next chapter in Granite’s evolution and growth.

I’ll now review some of the operational and strategic highlights. In 2017, Granite delivered a total return of approximately 50 – 15.9% to our unitholders and a 4.6% year-over-year increase in the annual amount to be distributed to unitholders for 2018. That’s of our sixth consecutive annual distribution increase since 2012.

During 2017, we renewed, extended or entered into 21 leases, representing an aggregate of 3.4 million square feet with annual revenue of approximately $22 million. This includes the lease-up of our development property in Poland, a 300,000 square foot facility that is now fully leased. Granite’s development yield on the project was in excess of 9%. As a result, Granite is going into 2018 with a 98.4% occupancy rate. Also, subsequent to the year-end, we renewed or entered into three additional leases, representing approximately 400,000 square feet and $4 million of annual revenue.

During the year, we deployed approximately $250 million on strategic capital investments, starting first with our acquiring from Magna, two building expansions at special purpose properties located in Kentucky and South Carolina for a total purchase price of US$53.7 million at an implied capitalization rate of 8.25%. These expansions generated approximately US$4.4 million of incremental annual revenue.

In October, we acquired a portfolio in the United States, consisting of 2.2 million square feet of gross leasable area in three properties at a purchase price of just under US$123 million and had an in-going capitalization rate of 6.1%. These properties generate approximately US$7.6 million of incremental annual revenue on a stabilized basis.

And lastly, we invested US$17 million in the repositioning and releasing of our Novi, Michigan property, which was vacated by Magna in March 2017. Granite has re-leased 71% of the building for a minimum lease term of 15 years, with an occupancy that commenced in January 2018. This will generate US$3.4 million of annual revenue.

We also reduced of our Magna and special purpose properties concentration, a key Granite strategic objective. In January 2018, we completed the sale of 10 properties, primarily tenanted by Magna, including three special purpose properties for a total sales price of approximately $391 million.

The three special purpose properties were sold at the combined capitalization rate for approximately 7.1%. The remaining seven properties, all contiguous and located in the general – in the Greater Toronto area. I had mentioned those in my Q3 remarks has being listed for sale. The capitalization rate on the sale of these seven properties was approximately 4.5%.

As a result of these two transactions, Granite recognized a $70 million gain, or $1.50 per stapled unit, increase in Granite’s net asset value, and based on gross leasable area, reduced Granite’s Magna concentration from approximately 65% to 61% and reduced the proportion of Granite’s portfolio comprising of special purpose properties by almost 5 percentage points to approximately 36% of Granite’s total portfolio.

As we stated before, Granite is also focused on net asset value accretion. And following the significant increase in Granite’s net asset value in 2016 resulting from the leasing transaction completed with Magna, our NAV increased by another 2 – over another $200 million, or approximately 10% per stapled unit in 2017.

This was largely driven by the sale of the 10 properties noted above, which unlock the embedded value of certain special purpose properties and also further validated overview of the intrinsic value of our properties in the Greater Toronto area.

On February 1, 2018, we further optimized our balance sheet by entering into a 5-year unsecured revolving credit facility in the amount of $500 million, that is available in Canadian dollars, U.S. dollars or euros and replaced our existing $250 million credit facility. Adding these proceeds – adding the proceeds on the sale of the 10 properties with the new credit facility, we currently have approximately $820 million of liquidity in the form of cash on hand and available credit lines.

We acquired over 1.1 million units pursuant to Granite’s normal course issuer bid for just under $56 million was just over 800,000 – 9 – pardon me, to just over 890,000 units being acquired subsequent to the year-end for almost $44 million.

Looking ahead, on the leasing side, I mentioned that we had 29 leases with 2018 expiries, 30 leases when you add the one lease expiry in our newly acquired building in Olive Branch, Mississippi just outside of Memphis. In total, they represent 4.8 million square feet.

Of that 4.8 million square feet, we have roughly 2.5 million square feet remaining across 11 properties left to be resolved and those can be broken down as follows: seven properties representing 1.7 million square feet had notices pending or are in active lease negotiations; two properties representing 300,000 square feet will be listed for sale; and we expect that the tenants of the remaining two properties representing 500,000 square feet to vacate, and we – and accordingly, these have been listed for lease.

Following the sale of the 10 properties, Granite with the net leverage ratio of 10%, liquidity of approximately $820 million, a pipeline of acquisition opportunities and in the rising interest rate environment has positioned itself to capitalize on the market opportunities within its geographic footprint and to execute on its strategy. We continue to pursue acquisitions in our core markets. In the U.S. and Western Europe, we are active, engaged. We have nothing confirmed just yet.

As we look to the remainder of 2018, our priorities are as follows: complete the CEO search; replace the revenue from the recently sold properties; accelerate growth in our key markets in North America and Europe, primarily through property, portfolio or corporate acquisitions as well as through joint venture arrangements and development; continue to recycle certain properties; and maintain target – occupancy in excess of 98%.

Executing on these near-term priorities, we believe will accelerate the continuing transformation of Granite into a high-quality globally diversified industrial real estate business. The Board and Management are committed to growth and remain disciplined in their investment approach to thoughtfully deploy Granite’s balance sheet over a broad range of investment opportunities. We believe that our patience to stay the course has and we continue to pay off – continue to pay off for the unitholders.

Lastly, as it relates to finding Granite a new CEO, the Board is well advanced in its search and that’s about all I can say about that.

With that, I’ll turn it over to Ilias to go over the financial highlights of the quarter.

Ilias Konstantopoulos

Thank you, Mike, and good morning to all. I’ll briefly summarize the results for the quarter and for the full fiscal year, which came in slightly ahead of our expectations.

Revenue for the fourth quarter increased $2.9 million to $57.2 million. The main contributing factors to the increase in revenue for the quarter include the acquisition of the three U.S. properties from IDI in October, which added $2.8 million, the acquisition of the building expansions from Magna in early January 2017 contributed $1.4 million of the increase, excuse me, contractual rent increases across our entire portfolio added $0.9 million of increase and a very slight favorable impact in our FX contributed $0.2 million.

These positive factors were offset by vacancies at our Novi property in Michigan, which reduced revenue by $1.6 million and at our property in Altbach, Germany, which reduced revenue by $0.4 million, and finally, a reduction for certain properties in Canada that we previously renewed or extended reduced revenue by $1.1 million.

With respect to revenue for the year, it decreased slightly $0.8 million to 2 – $22.6 million. The main factors contributing to the decrease in revenue were the vacancy at our Novi property $4.9 million and at our property in Altbach, Germany reducing revenue by $0.7 million, disposals of income producing properties in the U.S. and Germany in the prior year reduced revenue by $1.6 million this year, a reduction in rent for certain properties in Canada and the U.S. that were renewed or extended in October 16 reduced revenue by $7.1 million and an unfavorable impact in FX of $1.4 million.

These negative factors were partially offset by the acquisition of the three properties in the U.S. in the amount of $2.8 million, the acquisition of the building expansions in the amount of $5.3 million and the contractual rent increases across our portfolio in the amount of $3 million, lease termination and closeout fees received during the year of $1.6 million, and then leasing of two development properties in the U.S. and one in Poland in the amount of $1.8 million. So each of the previously noted factors are described in greater detail and quantified on Pages 10 and 11 of our MD&A within our annual report.

Shifting gears to the FFO, starting with the quarter. In the fourth quarter, our FFO was $41.6 million, or $0.89 per unit. In comparison, FFO for the prior year, excluding the early redemption costs associated with the unsecured debentures of $11.9 million, FFO was $38.1 million, or $0.81 per unit. So the apples-to-apples comparison is $0.89 this year versus $0.81 in the prior year period.

The $3.5 million increase in the FFO quarter-over-quarter was due primarily to the previously mentioned revenue increase of $2.9 million in aggregate, a $1.1 million reduction in G&A expenses and a favorable impact in FX of $0.8 million, offset by slightly higher operating costs of $0.8 million on account of the vacancies I mentioned, as well as higher interest expense in the period of $0.6 million.

For the full-year, our reported FFO was $153.2 million, or $3.25 per unit. Excluding the proxy contest costs of $5.9 million and the lease termination and closeout fees of $1.6 million, our FFO would have been $157.5 million, or $3.34 per unit for 2017. In comparison, our 2016 FFO was $161.6 million, or $3.43 per unit, when excluding the early redemption costs of $11.9 million.

So the year-over-year decrease in FFO of $4.1 million was due primarily to the previously described revenue decrease, as well as higher property operating costs in the amount of $1.7 million on account of the vacancies, unfavorable foreign exchange impact of $1 million, $1.0 million to be precise, a higher current tax expense of $2.1 million stemming from foreign operations and higher withholding tax due to cash repatriation from our overseas operations, offset by a $1.9 million reduction of G&A expenses and a $1.2 million favorable impact from various other items. Again, each of the above factors are described in greater detail in Page 20 of our annual report.

For the year 2017, we recorded share value gains in connection with our properties totaling $212 million, which Mike referenced. As expressed on a per unit basis, that’s about $4.50.

Turning to the balance sheet and adjusting for the 10 properties held for sale as at year-end, the IFRS fair value of our portfolio stood at $2.73 billion and had an implied overall cap rate of 7.6% and was entirely unencumbered by any secured debt. Our remaining income-producing portfolio of 84 properties at year-end comprised 29.1 million square feet, had an occupancy of 98.4%, as measured by GLA, had a WALT or a weighted average lease term of 5.9 years measured by square footage was 71% Magna tenanted, if measured by revenue or 61% if measured by GLA.

As at year-end adjusting – and adjusting for the property – properties held for sale, our total debt was $741 million and was comprised only of unsecured debt. It included a $32.6 million draw on our unsecured credit facility. It had a weighted average term to maturity of 4.8 years, a weighted average interest cost of 2.54%, and we had a corresponding net leverage ratio of 10%, which for greater clarity is net of our $69 million of cash and cash equivalents and $391 million of expected cash proceeds from asset sale – from the assets held for sale.

Shifting to the distributions paid during the year. These were $2.60, or $2.60 per unit and annualized distributions for 2018 are expected to be $2.72 a unit based on our current monthly distribution amount of $0.227 per unit.

Our FFO and AFFO payout ratios for the year, adjusting for the lease termination fees and closeout costs and proxy contest costs, were 78% and 82%, respectively, relative to 71% and 71%, respectively, for the prior year, excluding the early redemption costs. Mike spoke to the normal course issuer bids, I won’t repeat it.

And with that, Mike, back to you.

Michael Forsayeth

Thank you, Ilias. Operator, why don’t we turn it back to you, and we’ll see if that anybody has got any questions.

Question-and-Answer Session

Operator

Certainly. Thank you. [Operator Instructions] Our first question comes from the line of Mike Markidis with Desjardins. Please go ahead.

Michael Markidis

Hi, thanks. Thank you and good morning. Mike, I won’t go too much into detail on this, because you said pretty much that’s all you can say about that on the CEO search. But just with respect to your transition period, I think, it was initially said that you would stick around to the 30 to help with the transition. And just based on the course of events and the time it’s been taking to find a new CEO, is that something where that could potentially extended, or is September 30 of this year a hard stop for you?

Michael Forsayeth

I’ll do whatever I need to do for Granite. In the end, if they need me to stay longer, I’ll stay longer. But right now, the anticipated date is September 30 of this year. So you’re stuck with me for a little while longer.

Michael Markidis

Stuck with you, yes, I wouldn’t say that. But anyways, okay. Just on the sales that you guys have completed post-quarter, two very different asset makeups and portfolio types there. Can you – could you give us a sense on who is the buyer for both? And then it sounds like you’ve got some more sales to come, so maybe if you could just give us a quantum of the value of assets you have, that you expect to sell this year as well, that will be great?

Michael Forsayeth

Sure. I can’t give you too much detail on the buyers and give you the nature of the buyers. So the – for the special purpose properties, it was a private equity bond that specializes in those types of properties from a portfolio perspective. In the – for the Newpark Group of properties in the GTA, that was a private buyer, probably not a familiar name that people would recognize, but it was a private buyer.

Michael Markidis

Okay.

Michael Forsayeth

As it relates to…

Michael Markidis

Sorry about that.

Michael Forsayeth

As it relates back dispositions going forward, we’re going to be very sensitive to the timing of those, recognizing – one of our key objectives is to replace our income that we recently sold. So we’re going to be careful about how we sequence that over the course of the year. But we’ve said certainly, on the multipurpose side, we’ve identified different pools of assets, smaller, tertiary, primarily in the U.S., that we will be looking to dispose off over time.

Michael Markidis

Okay. But during your comments that you were talking about the lease renewals and there was another property that you had intended to sell or at least one, so are there properties that are under contract?

Michael Forsayeth

There is two in there. Like for example, we’ve mentioned, I think, in my – in the last quarter, the Tillsonburg property.

Michael Markidis

Yes.

Michael Forsayeth

Yes, that will be one that we’ll list for sale, and there’s another small one in – here in the GTA.

Michael Markidis

Okay, okay. Two more from me before I turn it back. Just with respect to the Novi lease or the 70% that you’ve got released, is any of that revenue recognized in the fourth quarter, or does that strictly kick in January?

Michael Forsayeth

It kicks in January.

Michael Markidis

Okay. Is there a free rent period associated with that?

Michael Forsayeth

Yes, it’s insignificant, yes.

Michael Markidis

Insignificant.

Michael Forsayeth

Couple of months.

Michael Markidis

Couple of months. Okay. And then just lastly, on the – finding a better way on the tax side and the lower than expected cash taxes for the fourth quarter. Is that something that you expect to continue to maintain going forward, or is that just sort of a special one-off case and then we should expect a more normal run rate back in...?

Michael Forsayeth

I think in the – for the year, if you look at the year as a whole, that’s not far off from a representative number from a current tax perspective. We expected it to be a little higher in the – in this quarter, specifically for the repatriation of a whack of cash that was sitting in Europe. In the ordinary course, on an annual basis, we will bring dividends back from Europe, which would be more normal in the run rate.

Michael Markidis

Okay. That’s it from me. Thank you.

Operator

Our next question comes from the line of Troy MacLean with BMO Capital Markets. Please go ahead.

Troy MacLean

Good morning.

Michael Forsayeth

Good morning Troy.

Troy MacLean

Just on – with the liquidity, I know you mentioned potentially doing development. But is that becoming a bigger focus, given how competitive the acquisition market is, or is that more of a 2019 interest?

Michael Forsayeth

We’ve got – as you may remember, Troy, we’ve got two properties that we’re – that we already own, that we’re looking to develop, one in Indianapolis. And right now, there’s Altbach, Germany, where Magna just recently vacated in July. The overall development will be a small piece, but it will be part of our capital allocation going forward. Acquisitions, overall, will be the larger portion of the capital being allocated. But we are looking to Indianapolis, certainly, move forward on that, but that will take time. Altbach is a longer proposition, because we’re still got rezoning to go through on that.

Troy MacLean

So you’re actively looking for some pre-leasing before you go ahead with Indianapolis?

Michael Forsayeth

Not necessarily in Indianapolis. We’re pretty comfortable with that market. Yes, we may go spec on that.

Troy MacLean

Okay, thanks for that. And then just finally, just with in terms of the asset sales, do you want to sell all of the special purpose properties, or is there the stuff in Europe you want to keep? Is there any kind of guidance you can kind of give on what – how much you want to retain and how much you want to sell?

Michael Forsayeth

That’s a tough question, Troy. It’s – I’m going to say, it’s going to be situational. The – as we look at the special purpose over time, the – for example, in Europe, the Graz has been and has proven to be a great property. Magna continues to expound on how terrific that property is and how important is to them. For us, Graz has also tax consequences associated with a pure sale of it. Overall, we will look to reduce our concentration in the special purpose. Do we want to sell all of it? Too early to say on that. It will be – that will be determined sort of over time.

Michael Forsayeth

Perfect. And then just finally, with rates starting to rise, does that change like how you look at acquisitions in terms of a going in yield, or any thoughts on that?

Michael Forsayeth

No, I don’t think it doesn’t change our view in terms of how we look at acquisitions. The – we’ll pace of our acquisitions over time. But right now, we’re sitting on literally over $300 million of cash. So we actively know we need to and would like to deploy that quickly, because it’s not doing a lot for our unitholders or for ourselves right now. So we will – we’ll be a little more aggressive on the first $300 million, then the second $300 million. Ilias?

Ilias Konstantopoulos

Yes, I would just add, as it relates to rate rise, Troy, I think, we viewed as something that plays to Granite’s strength being in a liquidity position in a rising rate environment, while we don’t know whether that will happen or not. But should it unfold, it will certainly have an impact on pricing, supply of real estate and the extent of demand. Right now, it’s got a lot of demand.

And as that unfolds, being in a position where we can deploy and deploy quickly, would only play to our favor. And so we’ll see how things are going to unfold and part of the strategy behind the $500 million credit facility was to give us maximum flexibility as we pursue our strategy.

Troy MacLean

Sounds great. Thank you. I’ll turn it back.

Operator

Our next question comes from the line of Sam Damiani with TD Securities. Please go ahead.

Sam Damiani

Thank you and good morning.

Michael Forsayeth

Good morning, Sam.

Sam Damiani

Good morning. Just on the outlook for acquisition with the leverage falling to 10%, arguably, puts the REIT in a position to perhaps more highly prioritize larger portfolios and possibly corporate acquisitions as you’ve alluded to in your letter to your unitholders. So when you look at the large deals, are there attributes that you’re looking at that might come, that could not be replicated in a series of one-off acquisitions, perhaps some tax benefits or other attributes that might be appealing to the REIT?

Michael Forsayeth

No, I don’t think so, Sam. In terms of the larger portfolio, often with the larger portfolio, you’ll likely get some with a little hair on them. As we do our singles and doubles, we can be more – we can be a little more selective on that. But we will certainly entertain and have entertained portfolios of size.

And as Ilias mentioned, that’s why we got the big facility, that’s why we have the cash on hand, $800 million of liquidity. It’s easy for us to write the check and frankly, not have to ask anybody.

Sam Damiani

Right. And just as you look at potentially larger portfolios, the same preferences exist for your one-off strategy, that being you like Europe, you like the U.S., not so much Canada, based on pricing?

Michael Forsayeth

Correct. Right now, I’d say, there’s more of a focus on the U.S. Europe is still – it’s clearly still important for us. But the opportunities right now that we’ve been more active on have been in the U.S. But we’ve also got a couple in Europe that we’re also pursuing.

Sam Damiani

And again, focusing on high-grade and the quality of the portfolio, so looking at pretty new portfolios, modern logistical properties?

Michael Forsayeth

Absolutely. New properties recently built 36 foot clear, demisable, lots of trailer parking. We’re looking for Class A product at this juncture.

Sam Damiani

And at this stage in the market cycle, what are the cap rates that you’re seeing in the marketplace for that total product recognizing the portfolio last fall?

Michael Forsayeth

It’s going to depend on the market. Yes, it’s wide, Mike – I mean, Sam. It – and it depends on the – literally on the market. You go to a market like Chicago or the Inland Empire, Atlanta, New Jersey, in the hot markets there, and you can be in the high mid-4s to low-5s. You go to other markets and you can get higher 5s, even early 6s. But it’s widespread depending on the market. And you go to Europe and it’s different again.

So it’s market specific. But from our perspective, we’re looking at a range to end up in a – in just as you would do in ordinary portfolio theory, going to get some really high-grade ones and you’re going to get ones with a little more risk. Well, as we did with the IDI portfolio, we took a little vacancy, which we’re very comfortable with. And we think that’s going to work out for us. And so we’ll play it on that basis.

Sam Damiani

Okay. And just on the IDI, have you made any progress in terms of backfilling that October vacancy?

Michael Forsayeth

Yes, we’ve made some – we have made some good progress on that. We’re very hopeful that that’s going to be resolved.

Sam Damiani

Okay. And just on the 1.8 million square feet of renewals to date, what would be the percentage decrease in the rent versus expiring on average roughly?

Michael Forsayeth

On the ones done to date?

Sam Damiani

Yes, for 2018 expiries, is this 1.8 million square feet...?

Michael Forsayeth

Yes. I’d look at overall from the – if you look at the 2018s overall on balance, we’re probably going to be pretty flat to up a little bit in total. So the – when you look at the ones we’ve got yet to be done, the ones that are up for lease and the ones that we have currently done, I think, we’re going to be up a little bit.

Sam Damiani

Okay. Thank you. I’ll turn it back.

Operator

[Operator Instructions] Our next question comes from the line of Howard Leung with Veritas Investment Research. Please go ahead.

Howard Leung

Good morning.

Michael Forsayeth

Good morning, Howard.

Howard Leung

Good morning. Just want to touch on the question that Sam had about on the renewals for 2018. You mentioned that there you’re slightly up. Which kind of properties and which kind of occupancies are you seeing more favorable lease terms and which ones are you seeing less favorable lease terms?

Michael Forsayeth

The – that’s hard one to be specific on that, Howard. I would say, if you look at particularly the ones in the GTA, we’ve got a little – we’ve got some upside on those. Certain other ones on the Magna related can – that were over market rents little lower. It’s really hard to be specific without really going lease by lease, and I’m not going to do that.

Howard Leung

That take a while, I think.

Michael Forsayeth

Yes.

Howard Leung

No, no, that’s fair. So it kind of is all across the Board and increasing.

Michael Forsayeth

Yes, it’s very – to Sam’s question on the – on cap rates, it’s very market specific.

Howard Leung

Okay. No, that’s fair. And then just a general question about capital allocation kind of the Granite units are trading 7%, 7.5% cap rate right now. And when you think about your liquidity, how much are you allocating to buybacks versus acquisitions given the high cap rates you’re units are trading at?

Michael Forsayeth

I think the focus will be on acquisitions, less so on the buyback. Always took the buyback on the NCIB is sort of nibbling around the – I call it, nibbling around the edges over the course. And you can see that our NAV, we’ve got a total that we can – the maximum we can do under the NCIB is 4 million units. So that really puts a top end on it if you wanted to think of it in terms of total capital.

Howard Leung

Right, okay. No, that that’s helpful.

Michael Forsayeth

Okay.

Howard Leung

And just one last one on CapEx, just noticed that ticked up to over $9 million this quarter. Anything in that, just like a one-time item this quarter?

Michael Forsayeth

No, that’s mainly Novi.

Howard Leung

Okay.

Michael Forsayeth

As I mentioned in my remarks about the repurposing and re-leasing of Novi, that was all Novi.

Howard Leung

Okay. Okay, sounds good. Thanks. I’ll pass the line.

Michael Forsayeth

Thank you.

Operator

Our next question comes from the line of Neil Downey with RBC Capital Markets. Please go ahead with your question.

Neil Downey

Thank you, and good morning, everyone. Can you hear me, okay?

Michael Forsayeth

Can hear you fine, Neil.

Neil Downey

Super. Congrats on wrapping up a nice 2017, guys.

Michael Forsayeth

Thank you.

Neil Downey

To follow-up on the last caller, what’s left to spend on Novi as we’re looking to Q1 and Q2?

Michael Forsayeth

Yes, about $6 million.

Neil Downey

And that will be pretty front-end loaded this year, I’m assuming?

Michael Forsayeth

Yes. It’s really – it’s – the $6 million, Neil, would be to lease up the vacant space…

Neil Downey

Okay.

Michael Forsayeth

…not on the – on what’s already what we’ve leased.

Neil Downey

Okay. So you’d spend everything you needed to prep it for the tenant for January 1 already?

Michael Forsayeth

That’s right. Yes.

Neil Downey

Okay.

Michael Forsayeth

The – he is in, and they are occupying as we speak.

Neil Downey

Okay.

Michael Forsayeth

So the money for – the money required for the 71% is behind us.

Neil Downey

Okay. And in bringing cash back to Canada, Ilias, what rate of return can you earn on that cash balance? Can you hit 1% or…?

Ilias Konstantopoulos

Candidly, no. Institutions certainly, not the Royal Bank, institutions like the Royal Bank are getting aside, Neil. It’s difficult in this environment. In fact, in Europe, we were at a point in time, we were faced with negative interest rates. Mike spoke to the repatriation strategy to bring capital back. We balanced bringing back and dealing with frictions, i.e., withholding taxes, but the reality is, when we have a use of proceeds as we did in the IDI transaction, it made eminent sense to bring that capital back and deploy in the U.S. But specific to your question, unfortunately, no. At this point in time, we’re not getting 1%.

Neil Downey

Okay. And I guess, just finally, may be to reflect a little bit. It was the better part of eight months ago, that a group of dissident unitholders that collectively had a 5% equity investment in Granite. They were critical of the REIT’s performance, its strategic direction and of management as well.

So if you look at the 2017 results, I guess, other than the $6 million of cost incurred and maybe the lost business momentum and the distraction, how do you believe the operating results and the financial results for the REIT were different than they might otherwise have been? And how do you believe your 2018 objectives are different than they might otherwise have been had that episode not occurred?

Michael Forsayeth

It’s a great question, Neil. The – I would characterize it is, as I said in my unitholder letter, that the newly constituted board and management worked collaboratively together to actually, I’ll say, reaffirm the strategy. And what we undertake and how we’re approaching the market. I would say, the new Board has, as I’ve said before, it’s back – has been back to business, it’s not been dysfunctional.

Have we changed? What we wanted to do, what we set out to do? No. Would the results have been different? Maybe not necessarily. Has there been, I’ll say, an increased, perhaps, challenge to management? I’d say that’s probably a – would be a fair statement with that change what we made might have done, not necessarily. Ilias, you want to make any other comment?

Ilias Konstantopoulos

Yes, the only other comment, I think, Mike, which you’ve made in the past is, if anything, we would say that there has been an acceleration…

Michael Forsayeth

Yes.

Ilias Konstantopoulos

…in focus to acquire. And in other words, emphasis to acquire, does not to say that we’re going to do so for the sake of it. We’re going to do it, as Mike often references, thoughtfully. And if the circumstance is right, the so-called former dissidents now newcomers will all agree that we’re going to invest quickly, but we’re not going to do it hastily.

And then the other reality of a new – whether it’s a Board member or management team member, in this case, the new Board members, inevitably they bring new perspectives. And that is potentially a good thing. Not unlike when we have a new member who joined Granite, that enforces everybody to rethink things and while it takes a little bit more time in the end, I think, that can only serve our unitholders.

Neil Downey

Okay. Thank you.

Michael Forsayeth

Thanks, Neil.

Operator

[Operator Instructions] Our next question comes from the line of Pammi Bir with Scotiabank. Please go ahead.

Pammi Bir

Thanks. Good morning.

Michael Forsayeth

Good morning, Pammi.

Pammi Bir

Just going back to the two properties that are going to be vacated, I think, you mentioned 500,000 square feet later this year. Where are those properties? And what are sort of the prospects for re-leasing there?

Michael Forsayeth

Yes. The one – the major one is in Botlek in The Netherlands that will be expiring at the end of the May. It’s the most significant one. It’s currently listed. We think it’s a great property, but I’m not concerned about it being re-leased or being vacant for a really long time. So – and the other one is in the GTA. And again, I’m not worried about that one either.

Pammi Bir

Okay. And then just tying that in with your comments around some of the renewals, how should we think about the overall organic growth profile of the business for 2018 from an NOI standpoint?

Michael Forsayeth

I think overall – yes, if you take out the ones that we’ve sold out of that piece and you look at the pool of 2018s that are remaining, that will continue on with Granite on a stabilized basis, I’d say overall, we’re going to be up.

Pammi Bir

Okay. And just a final…

Michael Forsayeth

That’s going to be 5%, but it’s not going to be 1%.

Ilias Konstantopoulos

Yes, Pammi, when we were talking about the year 2017 during the quarters, the main headwinds were Novi, which has been leased or it has been. And Altbach was another one. But there has been a bunch of activity as well additive activity, acquisitions, expansion, et cetera, that will in addition to Novi being partially leased. And so those headwinds were offset and that will help 2018, if you will, a better year all other things being equal.

Michael Forsayeth

Yes. I will add some to Ilias’ point 2017 was a year we knew we’re going to be a off a little bit, but ‘18 picks up, because you’ve got some of the bigger 2017s as well on the couple of special purpose that have contractual renewals and 5-year look backs, which will also coming in 2018.

Pammi Bir

So just taking further along, is there something that you’re planning to disclose on a – or you’d hopefully disclose the same property NOI numbers on a go-forward basis?

Michael Forsayeth

That’s been on the – you nailed it probably, that’s on the list, yes. Yes, we hadn’t been in a favorable spot to do that recently. But as we’ve grown and diversified the portfolio, and I’ll call it, realigned it, it’s something that we’ve – as a management team, it’s something that we would like to start doing at some point, yes.

Pammi Bir

Yes. I think it would be a great idea.

Michael Forsayeth

It’s pretty useful. I get it, yes.

Pammi Bir

Yes. Just putting it sort of – right sort of moving it up a notch in terms of just relative comparisons with your peers.

Michael Forsayeth

Yes.

Pammi Bir

Just maybe thinking about, I don’t want to heck around the acquisition side, but just how confident are you that 2018 could be a better year than 2017? And I guess, it ties into some of the changes, that Neil talked about with the Board. So how does your 2018 look? What would you be satisfied with?

Michael Forsayeth

We’d be satisfied with a fairly significant number. I’ve put it out there that the objectives that we want to do is, at least, replace the income that we sold. And if you do some math on that, you can get to – you can figure out a number that says this is the acquisitions that they would need to do in order to achieve that. And that gives you a bit of a profile in terms of what we’d – what we would be satisfied with. But the – our key objective is replace the $25-plus million that we sold, and we want to do that by the end of the year.

Pammi Bir

Okay. And then just last one. You obviously have a tremendous amount of liquidity, but have – joint venture acquisition opportunities are teaming up with partners, has that been under consideration at any stage for perhaps a larger transaction?

Michael Forsayeth

It would be, yes.

Pammi Bir

Is there anything being under in existing…?

Michael Forsayeth

There’s nothing been considered right now. But that would absolutely be something that would be considered.

Pammi Bir

Okay, great. Thanks very much.

Operator

Gentlemen, I’m showing no further questions registered.

Michael Forsayeth

That’s terrific. With that, operator, thank you. And in closing, I would just like to thank all of our employees in both North America and Europe for their help and dedication for another solid year at Granite, and thank you, everyone. And with that, we’ll sign off. Bye for now.

Operator

Ladies and gentlemen, that does conclude the conference call for today. We thank you all for your participation and ask that you please disconnect your lines.