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 ended March
31, 2021.
FIRST QUARTER 2021
HIGHLIGHTS
Highlights for the three month period ended March 31, 2021, are
set out below:
Financial:
- Granite's net operating income ("NOI") was $81.5 million in the
first quarter of 2021 compared to $67.9 million in the prior year
period, an increase of $13.6 million primarily as a result of
acquisition activity beginning in the first quarter of 2020;
- Same property NOI - cash basis(4) increased by 2.6% for the
three month period ended March 31, 2021, excluding the impact of
foreign exchange;
- Funds from operations ("FFO")(1) was $57.1 million ($0.93 per
unit) in the first quarter of 2021 compared to $56.8 million ($1.05
per unit) in the first quarter of 2020. Included in FFO this
quarter are $4.0 million of early redemption premium related to the
2021 Debentures and $0.5 million of accelerated amortization of
original financing costs related to the refinancing of Granite’s
credit facility. Excluding these refinancing costs, FFO per unit
for the first quarter would have been $1.00 per unit;
- Adjusted funds from operations ("AFFO")(2) was $54.7 million
($0.89 per unit) in the first quarter of 2021 compared to $55.6
million ($1.03 per unit) in the first quarter of 2020. Excluding
the above-mentioned financing costs, AFFO per unit for the first
quarter would have been $0.96 per unit;
- AFFO payout ratio(3) was 78% for the first quarter of 2021
compared to 70% in the first quarter of 2020;
- Granite recognized $209.5 million in net fair value gains on
investment properties in the first quarter of 2021 driven by lower
capitalization rates and terminal capitalization rates and/or
higher market rents observed across Granite's portfolio, but
largely attributable to the Greater Toronto Area and U.S.A. The
fair value gains on investment properties were partially offset by
unrealized foreign exchange losses of $140.4 million resulting from
the relative strengthening of the Canadian dollar against the US
dollar and the Euro; and
- Granite's net income attributable to stapled unitholders
increased to $230.1 million in the first quarter of 2021 from $81.3
million in the prior year period primarily due to a $173.5 million
increase in net fair value gains on investment properties and a
$13.6 million increase in net operating income as noted above,
partially offset by a $26.3 million increase in income tax expense
and a $8.2 million increase in interest expense and other financing
costs.
Operations:
- On January 28, 2021, Granite disposed of one property located
in Redditch, United Kingdom for gross proceeds of $10.6 million
(£6.0 million); and
- On March 12, 2021, Granite acquired a 1.0 million square foot,
40’ clear height modern warehouse distribution facility situated on
85.6 acres in the greater Atlanta region for $85.5 million (US$68.6
million). The state-of-the-art facility was completed in 2020 and
is 75% leased to Radial, Inc. for a remaining lease term of 7.6
years, subject to contractual annual rent escalations. The property
was acquired at an in-going yield of 3.8% and estimated stabilized
yield of 5.0% upon lease-up of the existing 250,000 square feet of
vacant space. The site also contains excess land to accommodate an
expansion of approximately 0.3 million square feet. The property is
well positioned in Atlanta’s Henry County sub-market within
Atlanta’s I-75 logistical thoroughfare, in close proximity to
Hartsfield-Jackson Atlanta International Airport, the Norfolk
Southern Intermodal Yard and direct access to the Port of
Savannah.
Financing:
- On January 4, 2021, Granite redeemed in full the outstanding
$250.0 million aggregate principal amount of the 2021 Debentures
for a total redemption price of $254.0 million. In conjunction with
the redemption, the related interest rate swap was terminated on
January 4, 2021 and the mark to market liability of $18.8 million
($17.7 million, net of interest income accrued) was settled;
- On March 22, 2021, DBRS Morningstar upgraded Granite LP’s
issuer rating and senior unsecured debentures rating to BBB (high)
from BBB, both with stable trends. The credit rating upgrade
reduces Granite’s borrowing costs on its term loans and credit
facility by 25 basis points; and
- On March 31, 2021, Granite amended its existing unsecured
revolving credit facility agreement to extend the maturity date of
February 1, 2023 to March 31, 2026. In addition, the credit
facility’s limit increased from $0.5 billion to $1.0 billion.
GRANITE’S FINANCIAL, OPERATING AND
PROPERTY HIGHLIGHTS
(in millions, except as noted)
For the three months ended
March 31,
2021
2020
Net operating income ("NOI")
$81.5
$67.9
Net income attributable to stapled
unitholders
230.1
$81.3
Funds from operations ("FFO")(1)
$57.1
$56.8
Adjusted funds from operations
("AFFO")(2)
$54.7
$55.6
Diluted FFO per stapled unit(1)
$0.93
$1.05
Diluted AFFO per stapled unit(2)
$0.89
$1.03
Monthly distributions paid per stapled
unit
$0.75
$0.73
AFFO payout ratio(3)
78%
70%
As at March 31 and December 31,
2021
2020
Fair value of investment properties
$6,003.7
$5,855.6
Cash and cash equivalents
$480.7
$831.3
Total debt
$1,959.5
$2,297.5
Net leverage ratio(5)
25%
25%
Number of income-producing properties
108
108
Gross leasable area (“GLA”), square
feet
50.4
49.5
Occupancy, by GLA
99.1%
99.6%
Magna as a percentage of annualized
revenue(7)
35%
36%
Magna as a percentage of GLA
27%
27%
Weighted average lease term in years, by
GLA
6.1
6.3
Overall capitalization rate(6)
5.4%
6.1%
A more detailed discussion of Granite’s
combined financial results for the three month periods ended March
31, 2021 and 2020 is contained in Granite’s Management’s Discussion
and Analysis of Results of Operations and Financial Position
("MD&A") and the unaudited 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.
COVID-19 PANDEMIC UPDATE
Granite continues to monitor developments regarding the COVID-19
pandemic and to ensure the safety of its tenants and staff. While
the full impact of the COVID-19 pandemic continues to be difficult
to predict, Granite believes at this time that its portfolio and
strong liquidity position will allow it to weather the on-going
impact of COVID-19.
During the three months ended March 31, 2021, there has not been
a significant impact on Granite’s operations, assets or liabilities
as a result of COVID-19. Granite has received 100% of Q1 2021 rents
due and 99.9% of April rents to date. Granite has not recognized
any provisions for uncollected rent at this time as all outstanding
rental income has been received. Granite reviewed its future cash
flow projections and the valuation of its properties considering
the impacts of the COVID-19 pandemic during the three months ended
March 31, 2021 and Granite does not expect, at this time, that
COVID-19 will have a significant negative impact to the fair value
of its investment property portfolio. In addition, there have not
been any significant fair value losses on investment properties
recorded in the three months ended March 31, 2021.
From a liquidity perspective, as at May 5, 2021, Granite has
total liquidity of approximately $1.5 billion, including its fully
undrawn operating facility which is sufficient to meet its current
commitments, development and construction projects. On January 4,
2021, Granite redeemed in full the outstanding $250.0 million
aggregate principal amount of the 2021 Debentures, therefore
Granite’s nearest debt maturity of $400.0 million does not occur
until November 2023 and Granite’s investment property portfolio of
approximately $6.0 billion remains fully unencumbered. Granite
believes it is well-positioned to weather any short-term negative
impacts on its business; however, Granite will continue to evaluate
and monitor its liquidity as the situation prolongs.
CONFERENCE CALL
Granite will hold a conference call on Thursday, May 6, 2021 at
11:00 a.m. (ET). The toll free number to use for this call is 1
(800) 582-1443. For international callers, please call 1 (416) 981-
9015. 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
21993157. The replay will be available until Monday, May 17,
2021.
ANNUAL MEETING OF
UNITHOLDERS
Granite's Annual Meeting of Unitholders will take place on June
10, 2021 at 10:00 a.m. (ET). Due to the public health impact of the
COVID-19 pandemic and in consideration of the health and safety of
our unitholders, employees and the broader community, this year's
meeting will be held in a virtual meeting format only, by way of a
live audio webcast. Unitholders can participate at the meeting by
joining the live audio webcast online at
https://web.lumiagm.com/420649348. Refer to the "Voting Information
and General Proxy Matters" within Granite's Management Information
Circular/Proxy Statement for detailed instructions on how to
participate and vote at the meeting. The webcast of the meeting
will be archived on our website following the meeting. Please refer
to the Annual Meetings page at www.granitereit.com for additional
details on the virtual meeting.
OTHER INFORMATION
Additional property statistics as at March 31, 2021 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 logistics, warehouse and
industrial properties in North America and Europe. Granite owns 115
investment properties representing approximately 50.4 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, 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 allowances incurred
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 March
31,
(in millions, except per unit amounts)
2021
2020
Net income attributable to stapled
unitholders
$230.1
$81.3
Add (deduct):
Fair value gains on investment properties,
net
(209.5)
(36.0)
Fair value losses on financial
instruments
0.3
1.9
Loss on sale of investment properties
0.2
—
Deferred income tax expense
35.9
10.3
Fair value remeasurement expense relating
to the Executive Deferred Stapled Unit Plan
—
(0.8)
Non-controlling interests relating to the
above
0.1
0.1
FFO(1)
[A]
$57.1
$56.8
Add (deduct):
Maintenance or improvement capital
expenditures incurred
(0.5)
(1.1)
Leasing commissions incurred(2)
—
—
Tenant allowances incurred
(0.1)
—
Tenant allowance amortization
1.3
1.3
Straight-line rent amortization
(3.1)
(1.4)
AFFO(2)
[B]
$54.7
$55.6
Basic and Diluted FFO per stapled
unit
[A]/[C] and [A]/[D]
$0.93
$1.05
Basic and Diluted AFFO per stapled
unit
[B]/[C] and [B]/[D]
$0.89
$1.03
Basic weighted average number of
stapled units
[C]
61.7
54.0
Diluted weighted average number of
stapled units
[D]
61.7
54.1
(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. Refer to the change in the current year
period to the calculation of AFFO payout ratio in footnote (2)
above.
(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)
Annualized revenue for each
period presented is calculated as rental revenue excluding tenant
recoveries, for the month of March 2021 or March 2020, as
applicable, recognized in accordance with IFRS, multiplied by 12
months.
FORWARD-LOOKING
STATEMENTS
This MD&A 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: Granite’s
expectations regarding the impact of the COVID-19 pandemic and
government measures to contain it, including with respect to
Granite’s ability to weather the impact of COVID-19, the
effectiveness of measures intended to mitigate such impact, and
Granite’s ability to deliver cash flow stability and growth and
create long-term value for unitholders; 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 and debenture offerings to fund potential acquisitions and
for the other purposes described previously; the potential for
expansion and rental growth at the property in Mississauga, Ontario
and the expected enhancement to the yields of such property from
such potential expansion and rental growth; the expected
construction on and development yield of the acquired greenfield
site in Houston, Texas; the expected development and construction
of an e-commerce and logistics warehouse on land in Fort Worth,
Texas; the expected construction of the distribution/light
industrial facility on the 13-acre site in Altbach, Germany; the
commencement of vertical construction at Granite’s development
project in Houston, Texas; the timing of payment of associated
unpaid construction costs and holdbacks; Granite’s ability to
dispose of any non-core assets on satisfactory terms; Granite’s
ability to meet its target occupancy goals; Granite’s ability to
secure sustainability or other certifications for any of its
properties; 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. Given the impact of the COVID-19
pandemic and government measures to contain it, there is inherently
more uncertainty associated with our assumptions as compared to
prior periods. Forward-looking statements and forward-looking
information 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 impact of the COVID-19
pandemic and government measures to contain it, and the resulting
economic downturn, on Granite’s business, operations and financial
condition; the risk that the pandemic or such measures intensify;
the duration of the pandemic and related impacts; the risk of
changes to tax or other laws and treaties that may adversely affect
Granite REIT’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 AIF for 2020 dated March 3, 2021,
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,
2020 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 MD&A to reflect subsequent information, events or
circumstances or otherwise.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20210505006158/en/
Teresa Neto Chief Financial Officer (647) 925-7560
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