Granite REIT Q4 Results: Has the Outperformance Been Factored In?

Granite REIT Delivers Strong Q4 Performance

Granite REIT reported impressive fourth-quarter results, surpassing expectations. The key figure, funds from operations (FFO) per unit, increased by 8.6% compared to the previous year, outperforming management’s projections. The quarterly FFO reached CAD 1.59 per unit, representing a 7.4% rise from the prior quarter. This robust outcome was fueled by favorable leasing spreads and active portfolio management, with same-property net operating income (NOI) also showing healthy growth.

Despite these results, the market’s reaction was subdued, indicating that investors had already anticipated this level of performance. The stock is currently valued above its 52-week high, suggesting that positive developments were already reflected in the share price. The focus now shifts to Granite’s future outlook.

2026 Outlook: Maintaining Momentum

Granite’s management has set expectations for 2026, forecasting constant currency, same-property NOI growth between 5.5% and 6.5%. While this guidance is solid, it essentially extends the company’s recent growth pattern rather than signaling a significant acceleration. As a result, the gap between expectations and reality has narrowed—Granite has delivered on its commitments, but those commitments were already factored into the stock’s valuation.

Sustainability Analysis: Recurring Growth Versus One-Off Gains

The fourth-quarter outperformance was driven by both strong ongoing operations and a notable one-time gain. Distinguishing between these elements is crucial for assessing the sustainability of Granite’s results.

• The primary contributor to the 5.6% annual same-property NOI growth was recurring in nature, stemming from contractual rent increases and favorable leasing spreads. These factors are fundamental to the REIT’s cash flow and underpin both management’s guidance and Granite’s history of increasing distributions. Investors can expect this organic growth to persist.
• However, the headline net income was significantly boosted by a one-off event: Granite recorded $60.5 million in net fair value gains on investment properties during the quarter. These gains, driven by higher market rents and cap rate compression, are accounting adjustments rather than recurring cash flow. While they inflated quarterly profits, they do not reflect ongoing earnings capacity. Over the full year, Granite actually experienced modest net fair value losses, highlighting the volatility of this line item.
• Another important factor is the company’s portfolio transformation. Granite has reduced its exposure to Magna from 93% of gross leasable area in 2012 to just 20% in 2025. This diversification enhances long-term stability by lowering tenant concentration risk and creating a more balanced income stream. Unlike one-time gains, this strategic shift is a lasting improvement that supports sustainable NOI growth.

In summary, while Granite’s quarterly beat was genuine, its underlying components reveal a more nuanced picture. The recurring NOI growth is the reliable engine, the fair value gains provided a temporary boost, and the portfolio diversification strengthens the business for the long term. For investors, the steady organic growth is already reflected in the share price, while the one-time gains were less expected, which may explain the muted market response.

Valuation and Guidance: Establishing a New Baseline

Granite REIT’s current valuation reflects high expectations, with the stock trading above its 52-week peak. This premium already incorporates the company’s strong operational performance over the past year. Going forward, management’s guidance must not only meet but justify this elevated valuation.

For income-focused investors, the AFFO payout ratio remained steady at 66%, signaling that distributions are well-supported by operating cash flow. This prudent financial management is essential for maintaining the current yield, though it does not, by itself, raise expectations further.

Looking ahead to 2026, management expects continued NOI and earnings growth driven by disciplined capital allocation. This outlook extends the current growth trend rather than accelerating it, confirming the trajectory established by the 5.6% annual same-property NOI increase. While this provides clarity, it does not set a new, higher bar for performance.

Analysts remain optimistic, with a median price target of C$87. This suggests some potential upside from current levels but also reflects the high expectations already in place. The key question is whether Granite’s guidance will inspire enough confidence to drive the stock toward these targets. At present, the guidance appears to be about maintaining expectations rather than exceeding them.

In essence, Granite’s outlook supports the current valuation but does not create a new catalyst for significant share price appreciation. The company’s future performance will depend on its ability to consistently deliver growth that meets or surpasses the already ambitious expectations embedded in the price target.

Opportunities and Risks: What Could Drive the Next Surprise?

With the recent outperformance already reflected in the share price, the next phase will be shaped by Granite’s execution against its 2026 guidance and its ability to manage key risks.

• The main opportunity lies in achieving the projected 5.5%-6.5% constant currency, same-property NOI growth. This metric underpins the stock’s premium valuation. Falling short could prompt a reassessment, while consistent outperformance could help close the gap between current expectations and actual results, potentially leading to a re-rating. For now, the guidance confirms the current trajectory rather than offering a positive surprise.
• Foreign exchange is another important variable. Granite has benefited from favorable currency movements, with the Canadian dollar’s recent weakness against the Euro and slight strengthening against the US dollar supporting reported results. However, these tailwinds are not guaranteed, and a reversal could impact reported NOI and earnings, creating a disconnect between operational performance and financial results. Investors should keep an eye on currency fluctuations as a potential source of volatility.
• Finally, Granite’s ongoing portfolio rebalancing and acquisition strategy are crucial for sustaining growth beyond organic NOI increases. The company has recently acquired six income-generating properties and sold others, aiming to drive future FFO and AFFO growth through disciplined capital deployment. The risk is that attractive acquisition opportunities may become scarce or that new deals may not be as favorable. Success in this area would validate the strategy and create new upside potential, while setbacks could make it harder to achieve the targeted NOI growth.

Ultimately, Granite’s path forward depends on steady execution. The next positive surprise is likely to come from the company’s ability to meet its NOI targets, navigate currency fluctuations, and successfully invest capital. The market will be closely watching for any deviation from the stable growth story that management has outlined.