TORONTO, July 31, 2019
/PRNewswire/ - Granite Real Estate Investment Trust and Granite
REIT Inc. (TSX: GRT.UN; NYSE: GRP.U) ("Granite" or the
"Trust") announced today its combined results for the three and six
month periods ended June 30, 2019.
HIGHLIGHTS
Highlights for the three month period ended June 30, 2019,
including events subsequent to the quarter, are set out below:
- Granite's net income attributable to stapled unitholders
decreased to $98.7 million in the
second quarter of 2019 from $149.2
million in the prior year period primarily due to a decrease
in net fair value gains on investment properties;
- Funds from operations ("FFO")(1) was $43.1 million ($0.89 per unit) in the second quarter of 2019
compared to $37.6 million
($0.82 per unit) in the second
quarter of 2018;
- Adjusted funds from operations ("AFFO")(2) was
$42.3 million ($0.88 per unit) in the second quarter of 2019
compared to $29.4 million
($0.64 per unit) in the second
quarter of 2018;
- AFFO payout ratio(3) was 83% for the second quarter
of 2019, a decrease from 99% in the second quarter of 2018;
- Granite's net operating income ("NOI")(4) was
$59.1 million in the second quarter
of 2019 compared to $54.7 million in
the prior year period. Same property NOI — cash basis(5)
increased by 0.6% for the three month period ended June 30, 2019, excluding the impact of foreign
exchange (2.8% year-to-date June 30,
2019);
- On April 9, 2019, Granite
acquired the leasehold interest in two fully leased properties
located in Mississauga, Ontario
for total consideration of $153.6
million at an in-going yield of 4.5% and a weighted average
lease term of 8.7 years;
- On May 23, 2019, Granite acquired
a 36' clear height distribution centre in Columbus, Ohio for total consideration of
$71.6 million (US$53.2 million) at an in-going yield of 5.7%.
This 100% leased state of the art facility was completed in 2018
and can be expanded by approximately 0.2 million square feet,
providing attractive site flexibility and growth potential;
- On July 1, 2019, Granite, in
partnership with NorthPoint Development, acquired a 191-acre
greenfield site in Houston, Texas
for $33.4 million (US$25.4 million) for the future development of up
to a 2.5 million square foot business park capable of accommodating
buildings ranging from 0.3 million to 1.2 million square feet.
Speculative construction of the initial phase, consisting of two
buildings totaling 0.6 million square feet, is anticipated to begin
in the third quarter of 2019. The project is expected to generate a
development yield spread of greater than 200 basis points;
- On July 8, 2019, Granite acquired
a 0.3 million square foot fully leased distribution centre in Born,
Netherlands for $25.7 million (€17.5 million) at an in-going
yield of 6.1% and with a weighted average lease term of 7.6
years;
- On July 17, 2019, Granite agreed
to acquire a 0.3 million square foot, 32' clear height distribution
centre in Horn Lake, Mississippi,
for total consideration of $24.0
million (US$18.5 million) at
an in-going yield of 5.7%, which is 100% leased with a remaining
weighted average lease term of 4.8 years. The acquisition is
subject to customary closing conditions and is expected to close in
the third quarter of 2019; and
- On April 30, 2019, Granite
completed an offering of 3,749,000 stapled units at a price of
$61.50 per unit for net proceeds of
$220.4 million, including 489,000
stapled units issued pursuant to the exercise of the over-allotment
option granted to the underwriters.
GRANITE'S FINANCIAL, OPERATING AND PROPERTY
HIGHLIGHTS
|
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|
|
|
|
|
|
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Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
(in millions,
except as noted)
|
2019
|
|
2018
|
|
2019
|
2018
|
Net operating income
("NOI")(4)
|
$
|
59.1
|
$
|
54.7
|
|
$
|
114.3
|
$
|
108.5
|
Net income
attributable to stapled unitholders
|
$
|
98.7
|
$
|
149.2
|
|
$
|
176.9
|
$
|
221.5
|
Funds from operations
("FFO")(1)
|
$
|
43.1
|
$
|
37.6
|
|
$
|
83.8
|
$
|
88.7
|
Adjusted funds from
operations ("AFFO")(2)
|
$
|
42.3
|
$
|
29.4
|
|
$
|
81.5
|
$
|
60.5
|
Diluted FFO per
stapled unit(1)
|
$
|
0.89
|
$
|
0.82
|
|
$
|
1.78
|
$
|
1.93
|
Diluted AFFO per
stapled unit(2)
|
$
|
0.88
|
$
|
0.64
|
|
$
|
1.73
|
$
|
1.32
|
Monthly distributions
paid per stapled unit
|
$
|
0.70
|
$
|
0.68
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$
|
1.40
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$
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1.36
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Special distribution
paid per stapled unit
|
—
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—
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$
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0.30
|
—
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AFFO payout
ratio(3)
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83%
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99%
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83%
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104%
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As at June 30
and December 31,
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2019
|
2018
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Fair value of
investment properties
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$
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3,799.1
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$
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3,425.0
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Assets held for
sale
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$
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50.5
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$
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44.2
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Cash and cash
equivalents
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$
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496.9
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$
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658.2
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Total debt
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$
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1,285.6
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$
|
1,303.2
|
Net leverage
ratio(6)
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21%
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19%
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Number of
income-producing properties
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79
|
80
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Gross leasable area
("GLA"), square feet
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34.5
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32.2
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Occupancy, by
GLA
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98.9%
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99.1%
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Magna as a percentage
of annualized revenue
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48%
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54%
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Magna as a percentage
of GLA
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41%
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47%
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Weighted average
lease term in years, by GLA
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6.0
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6.0
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Overall
capitalization rate(7)
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6.3%
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6.7%
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A more detailed discussion of Granite's combined financial
results for the three and six month periods ended June 30,
2019 and 2018 is contained in Granite's Management's Discussion and
Analysis of Results of Operations and Financial Position
("MD&A") and the unaudited condensed combined financial
statements for those periods and the notes thereto, which are
available through the internet on the Canadian Securities
Administrators' System for Electronic Document Analysis and
Retrieval ("SEDAR") and can be accessed at www.sedar.com and on the
United States Securities and Exchange Commission's (the "SEC")
Electronic Data Gathering, Analysis and Retrieval System ("EDGAR"),
which can be accessed at www.sec.gov.
CONFERENCE CALL
Granite will hold a conference call on Thursday, August 1,
2019 at 2:00 p.m. (ET). The toll free number to use for
this call is 1 (877) 846 8549. For international
callers, please use 1 (416) 981 9011. Please dial in
at least 10 minutes prior to the commencement of the call. The
conference call will be chaired by Kevan
Gorrie, President and Chief Executive Officer. To hear a
replay of the scheduled call, please dial
1 (800) 558 5253 (North
America) or 1 (416) 626 4100 (international)
and enter reservation number 21926960. The replay will be available
until Tuesday, August 13, 2019.
OTHER INFORMATION
Additional property statistics as at June 30, 2019 have
been posted to our website at
http://www.granitereit.com/propertystatistics/view-property-statistics.
Copies of financial data and other publicly filed documents are
available through the internet on SEDAR, which can be accessed at
www.sedar.com and on EDGAR, which can be accessed at
www.sec.gov.
Granite is a Canadian-based REIT engaged in the acquisition,
development, ownership and management of industrial, warehouse and
logistics properties in North
America and Europe. Granite
owns 85 investment properties (excluding six properties held for
sale) representing approximately 35 million square feet of
leasable area.
For further information, please see our website at
www.granitereit.com or contact Teresa
Neto, Chief Financial Officer, at (647) 925 7560.
NON-IFRS MEASURES
Readers are cautioned that certain terms used in this press
release such as FFO, AFFO, AFFO payout ratio, same property
NOI — cash basis, net leverage ratio and any related per
unit amounts used by management to measure, compare and explain the
operating results and financial performance of the Trust do not
have standardized meanings prescribed under International Financial
Reporting Standards ("IFRS") and, therefore, should not be
construed as alternatives to net income, cash provided by operating
activities or any other measure calculated in accordance with IFRS.
Additionally, because these terms do not have a standardized
meaning prescribed by IFRS, they may not be comparable to similarly
titled measures presented by other publicly traded entities.
(1)
|
FFO is a non-IFRS
performance measure that is widely used by the real estate industry
in evaluating the operating performance of real estate entities.
Granite calculates FFO as net income attributable to stapled
unitholders excluding fair value gains (losses) on investment
properties and financial instruments, gains (losses) on sale of
investment properties including the associated current income tax,
acquisition transaction costs, deferred income taxes and certain
other items, net of non-controlling interests in such items. The
Trust's determination of FFO follows the definition prescribed by
the Real Estate Property Association of Canada ("REALPAC") White
Paper on Funds From Operations & Adjusted Funds From
Operations for IFRS dated February 2019 and as subsequently amended
("White Paper"). Granite considers FFO to be a meaningful
supplemental measure that can be used to determine the Trust's
ability to service debt, fund capital expenditures and provide
distributions to stapled unitholders. FFO is reconciled to net
income, which is the most directly comparable IFRS measure (see
below). FFO should not be construed as an alternative to net income
or cash flow generated from operating activities determined in
accordance with IFRS.
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(2)
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AFFO is a non-IFRS
performance measure that is widely used by the real estate industry
in evaluating the recurring economic earnings performance of real
estate entities after considering certain costs associated with
sustaining such earnings. Granite calculates AFFO as net income
attributable to stapled unitholders including all adjustments used
to calculate FFO and further adjusts for actual maintenance capital
expenditures that are required to sustain Granite's productive
capacity, leasing costs such as leasing commissions and tenant
incentives paid and non-cash straight-line rent and tenant
incentive amortization, net of non-controlling interests in such
items. The Trust's determination of AFFO follows the definition
prescribed by REALPAC's White Paper. Granite considers AFFO to be a
meaningful supplemental measure that can be used to determine the
Trust's ability to service debt, fund expansion capital
expenditures, fund property development and provide distributions
to stapled unitholders after considering costs associated with
sustaining operating earnings. AFFO is also reconciled to net
income, which is the most directly comparable IFRS measure (see
below). AFFO should not be construed as an alternative to net
income or cash flow generated from operating activities determined
in accordance with IFRS.
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Three Months Ended
June 30,
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Six Months Ended June
30,
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(in millions,
except per unit amounts)
|
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2019
|
2018
|
|
2019
|
2018
|
Net income
attributable to stapled unitholders
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$
|
98.7
|
$
|
149.2
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$
|
176.9
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$
|
221.5
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Add
(deduct):
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Fair value gains on
investment properties, net
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(69.6
)
|
(127.9 )
|
|
(119.7
)
|
(160.2 )
|
Fair value losses
(gains) on financial instruments
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1.7
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(1.4 )
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1.8
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0.5
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Acquisition
transaction costs
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—
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1.6
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—
|
1.7
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Loss on sale of
investment properties
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0.6
|
0.1
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1.4
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1.2
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Other income —
settlement award
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|
—
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(2.3 )
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—
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(2.3 )
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Current income tax
expense associated with the
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sale of an investment
property
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—
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0.2
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—
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0.2
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Deferred income tax
expense
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11.8
|
18.1
|
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22.7
|
26.1
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Fair value
remeasurement expense relating
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to the Executive
Deferred Stapled Unit Plan(8)
|
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—
|
—
|
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0.7
|
—
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Non-controlling
interests relating to the above
|
|
(0.1
)
|
—
|
|
—
|
—
|
FFO(1)
|
[A]
|
$
|
43.1
|
$
|
37.6
|
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$
|
83.8
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$
|
88.7
|
Add
(deduct):
|
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|
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Maintenance or
improvement capital
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expenditures
paid
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(0.6
)
|
(6.2 )
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(1.8
)
|
(15.0 )
|
Leasing commissions
paid
|
|
—
|
(2.3 )
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(0.2
)
|
(4.0 )
|
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Tenant incentives
paid
|
|
—
|
(0.2 )
|
|
(0.2
)
|
(9.2 )
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Tenant incentive
amortization
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1.3
|
1.3
|
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2.6
|
2.7
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Straight-line rent
amortization
|
|
(1.5
)
|
(0.8 )
|
|
(2.7
)
|
(2.7 )
|
|
|
|
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AFFO(2)
|
[B]
|
$
|
42.3
|
$
|
29.4
|
|
$
|
81.5
|
$
|
60.5
|
Basic and Diluted
FFO per stapled unit
|
[A]/[C] and [A]/[D]
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$
|
0.89
|
$
|
0.82
|
|
$
|
1.78
|
$
|
1.93
|
|
|
|
|
|
|
|
|
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Basic and Diluted
AFFO per stapled unit
|
[B]/[C] and [B]/[D]
|
$
|
0.88
|
$
|
0.64
|
|
$
|
1.73
|
$
|
1.32
|
|
|
|
|
|
|
|
Basic weighted
average number of stapled units
|
[C]
|
48.2
|
45.8
|
|
47.0
|
46.0
|
|
|
|
|
|
|
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Diluted weighted
average number of stapled units
|
[D]
|
48.3
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45.8
|
|
47.0
|
46.1
|
(3)
|
AFFO payout ratio is
calculated as monthly distributions, which exclude the special
distribution, declared to unitholders divided by AFFO in a period.
AFFO payout ratio may exclude revenue or expenses incurred during a
period that can be a source of variance between periods. The AFFO
payout ratio is a supplemental measure widely used by analysts and
investors in evaluating the sustainability of the Trust's monthly
distributions to stapled unitholders. AFFO payout ratio for the
three months ended June 30, 2019 and 2018 exclude the lease
termination and close-out fees of $0.6 million and the
$1.9 million realized foreign exchange loss relating to the
remeasurement of US dollar cash proceeds from the sale of
investment properties in January 2018, respectively. AFFO payout
ratio for the six months ended June 30, 2019 excludes the
lease termination and close-out fees of $0.9 million. AFFO
payout ratio for the six months ended June 30, 2018 excludes
the lease termination and close-out fees of $1.0 million, the
net $8.5 million realized foreign exchange gain relating to
the remeasurement of US dollar cash proceeds from the sale of
properties and the $9.1 million tenant incentive payment made
in 2018 in connection with the 2014 lease extension at the Eurostar
facility.
|
(4)
|
NOI is calculated in
accordance with IFRS and is included in the unaudited condensed
combined financial statements as at and for the three and six month
periods ended June 30, 2019.
|
(5)
|
Same property NOI —
cash basis refers to the NOI — cash basis (NOI excluding lease
termination and close-out fees, and the non-cash impact from
straight-line rent and tenant incentive amortization) for those
properties owned by Granite throughout the entire current and prior
year periods under comparison. Same property NOI — cash basis
excludes properties that were acquired, disposed of, classified as
properties under or held for development or assets held for sale
during the periods under comparison. Granite believes that same
property NOI — cash basis is a useful supplementary measure in
understanding period-over-period organic changes in NOI — cash
basis from the same stock of properties owned.
|
(6)
|
The net leverage
ratio is calculated as the net debt (carrying value of total debt
less cash and cash equivalents) divided by the fair value of
investment properties. The net leverage ratio is a supplemental
measure used in evaluating the Trust's degree of financial
leverage, borrowing capacity and the relative strength of its
balance sheet.
|
(7)
|
Overall
capitalization rate is calculated as stabilized net operating
income (property revenue less property expenses) divided by the
fair value of the property.
|
(8)
|
The Executive
Deferred Stapled Unit Plan provides equity-based compensation in
the form of stapled units to executives and other employees. It is
anticipated that the fair value remeasurement relating to the
Executive Deferred Stapled Unit Plan will fluctuate and have a
greater impact on FFO and AFFO going forward and has, therefore,
been adjusted in FFO and AFFO in accordance with the REALPAC White
Paper. The comparative amount was not adjusted as it was not
significant in the prior year periods and the year 2018.
|
FORWARD-LOOKING STATEMENTS
This press release may contain statements that, to the extent
they are not recitations of historical fact, constitute
"forward-looking statements" or "forward-looking information"
within the meaning of applicable securities legislation, including
the United States Securities Act of 1933, as amended, the United
States Securities Exchange Act of 1934, as amended, and applicable
Canadian securities legislation. Forward-looking statements and
forward-looking information may include, among others, statements
regarding Granite's future plans, goals, strategies, intentions,
beliefs, estimates, costs, objectives, capital structure, cost of
capital, tenant base, tax consequences, economic performance or
expectations, or the assumptions underlying any of the foregoing.
Words such as "outlook", "may", "would", "could", "should", "will",
"likely", "expect", "anticipate", "believe", "intend", "plan",
"forecast", "project", "estimate", "seek" and similar expressions
are used to identify forward-looking statements and forward-looking
information. Forward-looking statements and forward-looking
information should not be read as guarantees of future events,
performance or results and will not necessarily be accurate
indications of whether or the times at or by which such future
performance will be achieved. Undue reliance should not be placed
on such statements. There can also be no assurance that: the
expansion and diversification of Granite's real estate portfolio
and the reduction in Granite's exposure to Magna and the special
purpose properties; the ability of Granite to accelerate growth and
to grow its net asset value and FFO and AFFO per unit; the ability
of Granite to find satisfactory acquisition, joint venture and
development opportunities and to strategically deploy the proceeds
from recently sold properties and financing initiatives; Granite's
intended use of the net proceeds from the equity offering to fund
potential acquisitions and for the other purposes; the potential
for expansion and rental growth at the properties in Mississauga, Ontario and Columbus, Ohio; the expected enhancement to
the yield of such properties from such potential expansion and
rental growth; the expected construction on and development yield
of the acquired greenfield site in Houston, Texas; the proposed acquisition of
the distribution centre in Horn Lake,
Mississippi and the expected timing of the closing of such
acquisition; Granite's ability to dispose of any non-core assets on
satisfactory terms; Granite's ability to meet its target occupancy
goals; and the expected amount of any distributions, can be
achieved in a timely manner, with the expected impact or at all.
Forward-looking statements and forward-looking information are
based on information available at the time and/or management's good
faith assumptions and analyses made in light of Granite's
perception of historical trends, current conditions and expected
future developments, as well as other factors Granite believes are
appropriate in the circumstances, and are subject to known and
unknown risks, uncertainties and other unpredictable factors, many
of which are beyond Granite's control, that could cause actual
events or results to differ materially from such forward-looking
statements and forward-looking information. Important factors that
could cause such differences include, but are not limited to, the
risk of changes to tax or other laws and treaties that may
adversely affect Granite Real Estate Investment Trust's mutual fund
trust status under the Income Tax Act (Canada) or the effective tax rate in other
jurisdictions in which Granite operates; economic, market and
competitive conditions and other risks that may adversely affect
Granite's ability to expand and diversify its real estate portfolio
and dispose of any non-core assets on satisfactory terms; and the
risks set forth in the "Risk Factors" section in Granite's Annual
Information Form for 2018 dated March 6, 2019, filed on SEDAR
at www.sedar.com and attached as Exhibit 1 to the Trust's Annual
Report on Form 40-F for the year ended December 31, 2018 filed
with the SEC and available online on EDGAR at www.sec.gov, all of
which investors are strongly advised to review. The "Risk Factors"
section also contains information about the material factors or
assumptions underlying such forward-looking statements and
forward-looking information. Forward-looking statements and
forward-looking information speak only as of the date the
statements and information were made and unless otherwise required
by applicable securities laws, Granite expressly disclaims any
intention and undertakes no obligation to update or revise any
forward-looking statements or forward-looking information contained
in this press release to reflect subsequent information, events or
circumstances or otherwise.
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SOURCE Granite Real Estate Investment Trust