Granite REIT: Capitalizing on U.S. Logistics Expansion and Q4 NOI Growth in a Tightening Market

The industrial real estate sector has long been a bastion of resilience, but 2025 has tested even the most seasoned players. Granite Real Estate Investment Trust (NYSE: GRP.U) stands out as a rare exception, leveraging strategic U.S. logistics acquisitions and robust leasing momentum to position itself for outperformance in a tightening market. With National Bank Financial's recent target price upgrade and a clear path to Q4 2025 net operating income (NOI) growth, Granite offers a compelling case for investors seeking exposure to a sector poised for recovery.

Strategic Acquisitions Fuel Long-Term Value

Granite's recent acquisitions of two fully leased logistics properties in Coral Springs, Florida, underscore its disciplined approach to capital allocation. The $49.5 million purchase of 0.1 million square feet of modern distribution space—100% leased to creditworthy tenants with a weighted average lease term of 6.6 years—provides immediate cash flow and long-term stability. These assets, located near major transportation corridors like the Sawgrass Expressway and Florida's Turnpike, cater to the surging demand for last-mile logistics in the tri-county area.

The in-going yield of 5.0% is conservative but strategically sound, with expectations of a 15%+ increase within two years due to market-driven rent adjustments and contractual escalations. This aligns with Granite's broader strategy of acquiring high-quality industrial assets in infill locations with strong demographic and economic tailwinds. The proximity to Miami, Broward County, and Palm Beach County—markets with over 6.6 million people within a 90-minute radius—ensures sustained demand from e-commerce and regional supply chains.

Leasing Momentum and Market Fundamentals

The U.S. industrial real estate market has faced headwinds in 2025, including a rise in vacancy rates to 6.3% and slower net absorption. However, Granite's focus on Class A properties with advanced infrastructure and ESG-aligned features has insulated it from broader softness. Its 94.8% occupancy rate as of Q2 2025, coupled with a 10% rental rate growth on new and renewed leases, highlights its ability to command premium pricing in a competitive environment.

Key drivers include the continued shift toward e-commerce, which now accounts for 20% of global retail, and reshoring trends accelerated by U.S. trade policies. Granite's tenant base—anchored by industry leaders like Amazon and Ceva—benefits from long-term leases with CPI-linked adjustments, ensuring inflation resilience. The REIT's recent 15.9-year renewal at its Hanover Township, Pennsylvania property exemplifies the confidence tenants place in its assets.

National Bank's Upgrade and Q4 Earnings Catalysts

National Bank Financial's upgraded target price for Granite from C$78.50 to C$85, coupled with an “Outperform” rating, reflects confidence in the REIT's operational and financial trajectory. The upgrade follows Q2 2025 results that highlighted “solid” U.S. leasing progress and increased guidance, with benefits weighted toward Q4. Analysts note that Granite's strategic acquisitions and strong cash flow generation position it to outperform peers, particularly as the industrial sector stabilizes.

The Q4 2025 earnings pop is underpinned by several factors:
1. Lease Escalations: Contractual rent growth and CPI adjustments will drive NOI expansion.
2. Asset Accretion: The Coral Springs properties, acquired in Q2, will contribute to full-year NOI.
3. Buyback Program: Granite's ongoing share repurchases (averaging $63.42/share in Q1 2025) enhance FFO per unit and signal management's belief in undervaluation.

Risk Mitigation and Balance Sheet Strength

Granite's conservative net debt/EBITDA ratio of 32% and $123 million in cash liquidity provide flexibility to navigate macroeconomic uncertainties. Its extended revolving credit facility through 2030 and cross-currency hedges further insulate it from interest rate and foreign exchange volatility. With a 60% AFFO payout ratio and a 4.8% dividend yield, the REIT balances income generation with reinvestment potential.

Investment Thesis: Timing the Q4 Pop

For investors, the case to act on Granite REIT hinges on timing. National Bank's upgraded target price and the REIT's Q4 earnings catalysts create a window to capitalize on undervaluation before the market fully recognizes its momentum. Key entry points include:
- Pre-Q4 Earnings: Positioning ahead of the December 3, 2025 earnings call, where full-year results are expected to reflect the Coral Springs acquisition's impact.
- Buyback-Driven Upside: The NCIB allows repurchases at a discount to intrinsic value, directly boosting shareholder returns.

Conclusion

Granite REIT's strategic U.S. logistics expansion, combined with National Bank's upgraded target and Q4 earnings catalysts, presents a rare opportunity in a sector facing near-term challenges. By focusing on high-demand infill locations, long-term leases, and disciplined capital allocation, the REIT is well-positioned to outperform as industrial fundamentals stabilize. For investors seeking a blend of income, growth, and downside protection, Granite offers a compelling case to capitalize on the industrial real estate recovery.

Final Call to Action: With the Q4 earnings pop on the horizon and National Bank's upgraded target in play, now is the time to evaluate Granite REIT as a core holding in a diversified real estate portfolio.