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 month period and year
ended December 31, 2019.
HIGHLIGHTS
Highlights for the three month period ended December 31, 2019
are set out below:
- Granite’s net operating income (“NOI”) was $63.9 million in the
fourth quarter of 2019 compared to $52.4 million in the prior year
period;
- Same property NOI — cash basis(4) increased by 4.6% for the
three month period ended December 31, 2019, excluding the impact of
foreign exchange (4.5% for the 2019 year);
- Funds from operations (“FFO”)(1) was $47.9 million ($0.91 per
unit) in the fourth quarter of 2019 compared to $40.9 million
($0.90 per unit) in the fourth quarter of 2018;
- Adjusted funds from operations (“AFFO”)(2) was $46.7 million
($0.89 per unit) in the fourth quarter of 2019 compared to $39.8
million ($0.87 per unit) in the fourth quarter of 2018;
- AFFO payout ratio(3) was 82% for the fourth quarter of 2019, an
increase from 79% in the fourth quarter of 2018;
- Granite realized $47.5 million in net fair value gains on
investment properties in the fourth quarter of 2019 primarily
attributable to continued favourable market fundamentals across
Granite’s markets and as reflected in the decrease to Granite’s
overall capitalization rate(6) of 6.1% (6.7% — December 31,
2018);
- Granite’s net income attributable to stapled unitholders
increased to $90.6 million in the fourth quarter of 2019 from $85.9
million in the prior year period primarily due to an increase in
net operating income, partially offset by a decrease in net fair
value gains on investment properties relative to the comparative
period and real estate transfer tax resulting from an internal
reorganization in the fourth quarter of 2019;
- 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 funds
from operations, annually;
- 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 one of
Granite’s existing properties, for $62.7 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
$294.4 million, including the full exercise of the over-allotment
option of 600,000 stapled units. The net proceeds received by
Granite after deducting the underwriters’ fees and other expenses
of the offering was $281.6 million;
- On November 4, 2019, Granite sold a 0.2 million square foot
property located in Aurora, Ontario for gross proceeds of $10.0
million;
- 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;
- On November 19, 2019, Granite acquired a 2.3 million square
foot state-of-the-art multi-level e-commerce fulfillment centre
situated on 101 acres of land in Dallas, Texas for $290.3 million
(US$216.7 million). The newly constructed property is 100% leased
to a leading global e-commerce provider for an initial term of 20
years;
- On November 27, 2019, Granite extended and refinanced its $300
million term loan. The term loan has been extended one year to
December 11, 2026. Concurrently, the previously existing cross
currency interest rate swap was terminated for $6.8 million and
Granite entered into a new seven year cross currency interest rate
swap resulting in Euro denominated payments at a 1.355% fixed
interest rate, approximately 85 basis points lower than the
previous rate. The refinancing is expected to result in interest
expense savings of approximately $2.3 million or $0.04 per stapled
unit of funds from operations, annually;
- On December 4, 2019, Granite sold five properties comprising
0.7 million square feet in Michigan, United States, for aggregate
gross proceeds of $38.9 million;
- On December 18, 2019, Granite agreed to acquire three
facilities in the Netherlands for approximately $129.5 million (€89
million). Currently under construction, the three properties,
representing an aggregate gross leasable area of 0.8 million square
feet, are anticipated to be purchased in the second quarter of 2020
and a 0.1 million square foot expansion at one of the facilities
will be completed in the first quarter of 2021. The acquisition
includes approximately 1.8 acres of additional land for potential
future expansion. The properties are 100% leased to three prominent
European tenants for a weighted average lease term of approximately
11 years. The commitment to purchase the three properties in the
Netherlands is subject to customary closing conditions; and
- On December 19, 2019, Granite acquired two multi-tenant modern
distribution buildings totaling 1.7 million square feet, featuring
32 foot clear height and situated on 95 acres of land in Southaven,
Mississippi for $115.3 million (US$87.9 million).
GRANITE’S FINANCIAL, OPERATING AND PROPERTY
HIGHLIGHTS
Three Months Ended
December 31,
Years Ended December
31,
(in millions, except as noted)
2019
2018
2019
2018
Net operating income
(“NOI”)........................................
$ 63.9
$ 52.4
$ 238.3
$ 216.6
Net income attributable to stapled
unitholders..............
$ 90.6
$ 85.9
$ 382.1
$ 465.2
Funds from operations
(“FFO”)(1)................................
$ 47.9
$ 40.9
$ 177.5
$ 168.9
Adjusted funds from operations
(“AFFO”)(2).................
$ 46.7
$ 39.8
$ 172.8
$ 138.1
Diluted FFO per stapled
unit(1)....................................
$ 0.91
$ 0.90
$ 3.62
$ 3.68
Diluted AFFO per stapled
unit(2).................................
$ 0.89
$ 0.87
$ 3.53
$ 3.01
Monthly distributions paid per stapled
unit...................
$ 0.70
$ 0.68
$ 2.80
$ 2.72
Special distribution paid per stapled
unit......................
—
—
0.30
—
AFFO payout
ratio(3)....................................................
82%
79%
81%
91%
As at December 31,
2019
2018
Fair value of investment
properties..................................................................
$ 4,457.9
$ 3,425.0
Assets held for
sale.........................................................................................
—
44.2
Cash and cash
equivalents.............................................................................
$ 298.7
$ 658.2
Total
debt........................................................................................................
$ 1,250.3
$ 1,303.2
Net leverage
ratio(5)........................................................................................
21%
19%
Number of income-producing
properties..........................................................
85
80
Gross leasable area (“GLA”), square
feet........................................................
40.0
32.2
Occupancy, by
GLA.........................................................................................
99.0%
99.1%
Magna as a percentage of annualized
revenue...............................................
42%
54%
Magna as a percentage of
GLA.......................................................................
35%
47%
Weighted average lease term in years, by
GLA...............................................
6.5
6.0
Overall capitalization
rate(6).............................................................................
6.1%
6.7%
A more detailed discussion of Granite’s combined financial
results for the three month periods and years ended December 31,
2019 and 2018 is contained in Granite’s Management’s Discussion and
Analysis of Results of Operations and Financial Position
(“MD&A”) and the audited combined financial statements for the
year ended December 31, 2019 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, March 5, 2020
at 9:00 a.m. (ET). The toll free number to use for this call is 1
(800) 942-7925. For international callers, please use 1 (416)
620-9188. 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 21937746. The replay will be available until Tuesday, March
17, 2020.
OTHER INFORMATION
Additional property statistics as at December 31, 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 has filed its annual report on Form 40-F for the year
ended December 31, 2019 with the SEC. The Form 40-F, including the
audited combined financial statements, included therein, is
available at http://www.granitereit.com. Hard copies of the
audited combined financial statements are available free of charge
on request by calling (647) 925-7500 or writing to:
Investor Inquiries 77 King Street West, Suite 4010, P.O. Box 159
Toronto-Dominion Centre Toronto, Ontario M5K 1H1
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
90 investment properties representing approximately 40.0 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.
(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 December
31,
Years Ended December
31,
(in millions, except per unit amounts)
2019
2018
2019
2018
Net income attributable to stapled
unitholders
$ 90.6
$ 85.9
$ 382.1
$ 465.2
Add (deduct):
Fair value gains on investment properties,
net............................................................................
(47.5 )
(52.9 )
(245.4 )
(354.7 )
Fair value (gains) losses on financial
instruments.......................................................................
(1.0 )
1.4
(1.2 )
0.5
Acquisition transaction
costs.......................................................................................................
—
0.4
—
8.0
Loss on sale of investment
properties.........................................................................................
1.0
1.5
3.0
6.9
Other income—settlement
award................................................................................................
—
—
—
(2.3 )
Current income tax expense associated with
the sale of an investment property........................
—
—
—
0.2
Deferred income tax
expense......................................................................................................
4.5
4.6
37.6
45.0
Fair value remeasurement expense relating
to the Executive Deferred Stapled Unit Plan(7)......
0.3
—
1.3
—
Non-controlling interests relating to the
above............
—
—
0.1
0.1
FFO(1)...............................................................................................................................................
[A]
$ 47.9
$ 40.9
$ 177.5
$ 168.9
Add (deduct):
Maintenance or improvement capital
expenditures
paid...........................................................
(0.3 )
(1.2 )
(2.9 )
(17.8 )
Leasing commissions
paid........................................................................................................
(0.5 )
(0.2 )
(1.3 )
(4.2 )
Tenant incentives
paid...............................................................................................................
(0.3 )
(0.2 )
(0.5 )
(9.9 )
Tenant incentive
amortization....................................................................................................
1.3
1.3
5.1
5.4
Straight-line rent
amortization....................................................................................................
(1.4 )
(0.8 )
(5.1 )
(4.3 )
AFFO(2).............................................................................................................................................
[B]
$ 46.7
$ 39.8
$ 172.8
$ 138.1
Basic and Diluted FFO per stapled
unit.......................................................................................
[A]/[C] and [A]/[D]
$ 0.91
$ 0.90
$ 3.62
$ 3.68
Basic and Diluted AFFO per stapled
unit.....................................................................................
[B]/[C] and [B]/[D]
$ 0.89
$ 0.87
$ 3.53
$ 3.01
Basic weighted average number of
stapled
units.......................................................................
[C]
52.6
45.7
49.0
45.9
Diluted weighted average number of
stapled
units....................................................................
[D]
52.6
45.7
49.0
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 year ended December 31, 2019 exclude
the lease termination and close-out fees of $0.9 million. AFFO
payout ratio for the year ended December 31, 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 and integrate 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 its
equity offerings 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 term loans 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 2019 dated March 4, 2020,
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,
2019 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.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20200304005863/en/
Teresa Neto, Chief Financial Officer, at (647) 925 7560
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