TORONTO, Nov. 5, 2019
/CNW/ - 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 nine month
periods ended September 30, 2019, and an increase to its
targeted annualized distribution to $2.90 from $2.80
per unit, to be effective upon the distribution payable in
mid-January 2020.
HIGHLIGHTS
Highlights for the three month period ended September 30,
2019, including events subsequent to the quarter, are set out
below:
- Granite's net operating income ("NOI") was $60.1 million in the third quarter of 2019
compared to $55.7 million in the
prior year period. Same property NOI — cash basis(4)
increased by 5.8% for the three month period ended September 30, 2019, excluding the impact of
foreign exchange (3.9% year-to-date September 30, 2019);
- Funds from operations ("FFO")(1) was $45.8 million ($0.93 per unit) in the third quarter of 2019
compared to $39.1 million
($0.86 per unit) in the third quarter
of 2018;
- Adjusted funds from operations ("AFFO")(2) was
$44.6 million ($0.90 per unit) in the third quarter of 2019
compared to $37.7 million
($0.82 per unit) in the third quarter
of 2018;
- AFFO payout ratio(3) was 78% for the third quarter
of 2019, a decrease from 82% in the third quarter of 2018;
- Granite realized $78.2 million in
net fair value gains on investment properties in the third quarter
of 2019 primarily attributable to continued favourable market
fundamentals across Granite's markets and reflected in the decrease
to Granite's overall capitalization rate(6) to 6.2%
(6.7% — December 31, 2018);
- Granite's net income attributable to stapled unitholders
decreased to $114.5 million in the
third quarter of 2019 from $157.8
million in the prior year period primarily due to a decrease
in net fair value gains on investment properties relative to the
comparative period;
- 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. Speculative
construction of the initial phase, consisting of two buildings
totaling 0.7 million square feet, is anticipated to begin in the
fourth quarter of 2019;
- 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 August 1, 2019, Granite
acquired a 0.3 million square foot fully leased distribution centre
in Horn Lake, Mississippi, for
$24.5 million (US$18.5 million) at an in-going yield of 5.7%
with a remaining weighted average lease term of 4.8 years;
- On September 20, 2019, Granite
sold a 0.1 million square foot property located in Toronto, Ontario for gross proceeds of
$13.1 million;
- On October 4, 2019, Granite
acquired a 0.5 million square foot, newly constructed, 36 foot
clear height modern distribution centre, situated on 31.4 acres of
land in Greenwood (Indianapolis), Indiana for $39.6
million (US$29.7 million).
This state-of-the-art facility was completed in 2018 and is 100%
leased for a remaining lease term of 7.0 years;
- On October 10, 2019, Granite
extended and refinanced its US$185
million term loan. The term loan has been extended two years
to December 19, 2024. The previously
existing cross currency interest rate swap relating to the term
loan was terminated on September 24,
2019 and blended into a new cross currency interest rate
swap resulting in Euro denominated payments at a 0.522% fixed
interest rate, approximately 70 basis points lower than the
previous rate. The refinancing is expected to result in interest
expense savings of approximately $1.6
million or $0.03 per stapled
unit of adjusted funds from operations, annually;
- On October 15, 2019, the tenant
at the recently developed property in Dallas, Texas waived its rights under the
lease to purchase the property. As a result, Granite is committed
to acquiring the property which is subject to customary closing
conditions and is expected to close in the fourth quarter of
2019;
- On October 18, 2019, Granite
acquired a 0.7 million square foot, 32 foot clear height
distribution centre situated on 48.3 acres of land in Pooler (Savannah), Georgia, adjacent to Granite's existing
property, for $62.4 million
(US$47.5 million). The property is
100% leased for a remaining lease term of 3.1 years;
- On October 31, 2019, Granite
completed an offering of 4,600,000 stapled units at a price of
$64.00 per unit for gross proceeds of
approximately $294.4 million,
including the full exercise of the over-allotment option of 600,000
stapled units (the ''Offering''). The net proceeds received by
Granite after deducting the underwriters' fees and the estimated
expenses of the Offering were approximately $281.6 million. Subsequent to the Offering and as
at November 5, 2019, Granite had
54,052,708 stapled units issued and outstanding.
Granite intends to use the net proceeds from the Offering to fund a
portion of Granite's recently announced acquisition in Texas, commitments under existing development
projects, potential future acquisitions and for general trust
purposes;
- On November 4, 2019, Granite sold
a 0.2 million square foot property located in Aurora, Ontario for gross proceeds of
$10.0 million; and
- On November 5, 2019, Granite
approved an increase to its targeted annualized distribution by
3.6% to $2.90 ($0.242 per month) per stapled unit commencing
with the December 2019 monthly
distribution payable in mid-January
2020, marking its eighth consecutive annual increase and
representing a cumulative increase of 45.0% to its
distribution.
GRANITE'S FINANCIAL, OPERATING AND PROPERTY
HIGHLIGHTS
|
|
|
|
|
|
|
Three Months Ended September
30,
|
|
Nine Months Ended September
30,
|
(in millions,
except as noted)
|
2019
|
2018
|
|
2019
|
2018
|
Net operating income
("NOI")
|
$
|
60.1
|
$
|
55.7
|
|
$
|
174.4
|
$
|
164.2
|
Net income
attributable to stapled unitholders
|
$
|
114.5
|
$
|
157.8
|
|
$
|
291.5
|
$
|
379.3
|
Funds from operations
("FFO")(1)
|
$
|
45.8
|
$
|
39.1
|
|
$
|
129.6
|
$
|
128.0
|
Adjusted funds from
operations ("AFFO")(2)
|
$
|
44.6
|
$
|
37.7
|
|
$
|
126.2
|
$
|
98.3
|
Diluted FFO per
stapled unit(1)
|
$
|
0.93
|
$
|
0.86
|
|
$
|
2.71
|
$
|
2.79
|
Diluted AFFO per
stapled unit(2)
|
$
|
0.90
|
$
|
0.82
|
|
$
|
2.64
|
$
|
2.14
|
Monthly distributions
paid per stapled unit
|
$
|
0.70
|
$
|
0.68
|
|
$
|
2.10
|
$
|
2.04
|
Special distribution
paid per stapled unit
|
—
|
—
|
|
$
|
0.30
|
—
|
AFFO payout
ratio(3)
|
78%
|
82%
|
|
81%
|
96%
|
|
|
|
As at
September 30 and December 31,
|
2019
|
2018
|
Fair value of
investment properties
|
$
|
3,938.3
|
$
|
3,425.0
|
Assets held for
sale
|
$
|
48.3
|
$
|
44.2
|
Cash and cash
equivalents
|
$
|
455.4
|
$
|
658.2
|
Total debt
|
$
|
1,253.2
|
$
|
1,303.2
|
Net leverage
ratio(5)
|
20%
|
19%
|
Number of
income-producing properties
|
80
|
80
|
Gross leasable area
("GLA"), square feet
|
34.9
|
32.2
|
Occupancy, by
GLA
|
99.7%
|
99.1%
|
Magna as a percentage
of annualized revenue
|
47%
|
54%
|
Magna as a percentage
of GLA
|
40%
|
47%
|
Weighted average
lease term in years, by GLA
|
6.0
|
6.0
|
Overall
capitalization rate(6)
|
6.2%
|
6.7%
|
A more detailed discussion of Granite's combined financial
results for the three and nine month periods ended
September 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 Wednesday,
November 6, 2019 at 2:00 p.m. (ET). The toll free number
to use for this call is 1 (800) 584 2088. 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 21930591. The replay will be available
until Monday, November 18, 2019.
OTHER INFORMATION
Additional property statistics as at September 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 over 85 investment properties representing approximately 38.5
million square feet of leasable area on a pro-forma basis.
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.
|
|
|
(2)
|
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.
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended September
30,
|
(in millions,
except per unit amounts)
|
|
2019
|
2018
|
|
2019
|
2018
|
Net income
attributable to stapled
|
|
|
|
|
|
|
unitholders
|
|
$
|
114.5
|
$
|
157.8
|
|
$
|
291.5
|
$
|
379.3
|
Add
(deduct):
|
|
|
|
|
|
|
Fair value gains on
investment properties,
|
|
|
|
|
|
|
net
|
|
(78.2)
|
(141.6)
|
|
(197.9)
|
(301.8)
|
Fair value gains on
financial instruments
|
|
(2.0)
|
(1.4)
|
|
(0.2)
|
(0.9)
|
Acquisition
transaction costs
|
|
—
|
5.8
|
|
—
|
7.6
|
Loss on sale of
investment properties
|
|
0.7
|
4.1
|
|
2.0
|
5.4
|
Other
income—settlement award
|
|
—
|
—
|
|
—
|
(2.3 )
|
Current income tax
expense associated with
|
|
|
|
|
|
|
the sale of an
investment property
|
|
—
|
—
|
|
—
|
0.2
|
Deferred income tax
expense
|
|
10.4
|
14.3
|
|
33.1
|
40.4
|
Fair value
remeasurement expense relating
|
|
|
|
|
|
|
to the Executive
Deferred Stapled Unit
|
|
|
|
|
|
|
Plan(7)
|
|
0.3
|
—
|
|
1.0
|
—
|
Non-controlling
interests relating to the
|
|
|
|
|
|
|
above
|
|
0.1
|
0.1
|
|
0.1
|
0.1
|
FFO(1)
|
[A]
|
$
|
45.8
|
$
|
39.1
|
|
$
|
129.6
|
$
|
128.0
|
Add
(deduct):
|
|
|
|
|
|
|
Maintenance or
improvement capital
|
|
|
|
|
|
|
expenditures
paid
|
|
(0.8)
|
(1.6)
|
|
(2.6)
|
(16.6)
|
Leasing commissions
paid
|
|
(0.6)
|
—
|
|
(0.8)
|
(4.0)
|
Tenant incentives
paid
|
|
—
|
(0.5)
|
|
(0.2)
|
(9.8)
|
Tenant incentive
amortization
|
|
1.3
|
1.4
|
|
3.9
|
4.1
|
Straight-line rent
amortization
|
|
(1.1)
|
(0.7)
|
|
(3.7)
|
(3.4)
|
AFFO(2)
|
[B]
|
$
|
44.6
|
$
|
37.7
|
|
$
|
126.2
|
$
|
98.3
|
Basic and Diluted
FFO per stapled unit
|
[A]/[C] and [A]/[D]
|
$
|
0.93
|
$
|
0.86
|
|
$
|
2.71
|
$
|
2.79
|
Basic and Diluted
AFFO per stapled unit
|
[B]/[C] and
[B]/[D]
|
$
|
0.90
|
$
|
0.82
|
|
$
|
2.64
|
$
|
2.14
|
Basic weighted
average number of stapled
|
|
|
|
|
|
|
units
|
[C]
|
49.4
|
45.7
|
|
47.8
|
45.9
|
Diluted weighted
average number of stapled
|
|
|
|
|
|
|
units
|
[D]
|
49.5
|
45.8
|
|
47.9
|
45.9
|
|
|
(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 nine months ended September 30, 2019 exclude the lease
termination and close-out fees of $0.9 million. AFFO payout
ratio for the nine months ended September 30, 2018 exclude 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)
|
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.
|
(5)
|
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.
|
(6)
|
Overall
capitalization rate is calculated as stabilized net operating
income (property revenue less property expenses) divided by the
fair value of the property.
|
(7)
|
The Executive
Deferred Stapled Unit Plan provides equity-based compensation in
the form of restricted 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 of the Offering to fund potential
acquisitions and for the other purposes described previously;
Granite's ability to dispose of any non-core assets on satisfactory
terms; Granite's ability to meet its target occupancy goals; the
expected impact of the refinancing of the US term loan on Granite's
returns and cash flow; and the expected amount of any distributions
and distribution increase, 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