TORONTO, July 31, 2018 /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 six month periods ended
June 30, 2018.
''Granite continues to make significant progress towards
diversifying and enhancing the quality of its real estate portfolio
through the thoughtful deployment of its balance sheet and
selective dispositions. As a result, Granite is well-positioned for
continued success under Kevan
Gorrie's leadership, as Granite moves into the next chapter
in its evolution. Kevan is a proven leader who brings a broad range
of experience in all aspects of the industrial asset class and, in
particular, logistics and e-commerce applications which makes him a
great fit for Granite and its management team,'' commented
Michael Forsayeth, Chief Executive
Officer.
HIGHLIGHTS
Highlights for the three month period ended June 30, 2018, including events subsequent to the
quarter, are set out below:
- Granite's revenue was $62.1
million in the second quarter of 2018 compared to
$60.5 million in the prior year
period;
- Funds from operations (''FFO'')(1) was $37.6 million ($0.82 per unit) in the second quarter of 2018 and
includes a $1.9 million ($0.04 per unit) foreign exchange loss on US
dollar cash proceeds from the sale of three special purpose
properties in January 2018 compared
to $31.6 million ($0.67 per unit) in the second quarter of 2017,
which included $5.9 million
($0.12 per unit) of costs in
connection with the 2017 proxy contest;
- Adjusted funds from operations (''AFFO'')(2) was
$29.4 million ($0.64 per unit) in the second quarter of 2018 and
includes a $5.9 million increase in
capital expenditures paid relating to improvement projects at
properties in Novi, Michigan and
Olive Branch, Mississippi that
were re-leased to non-Magna tenants in the first quarter of 2018.
AFFO was $32.5 million ($0.69 per unit) in the second quarter of
2017;
- Granite acquired five warehouse and logistics properties in
the United States having a total
gross leasable area of 4.2 million square feet during the quarter
and, on July 12, 2018, acquired a 0.7
million square foot property in Germany. The total purchase price for these
six properties excluding transaction costs was $426.4 million. Together these properties have an
average in-going yield of 5.9% and a weighted average lease term of
7.2 years as at the dates of acquisition. To facilitate an intended
expansion of 0.3 million square feet at an acquired property,
Granite has committed to invest an incremental US$ 17.7 million;
- On July 18, 2018, Granite sold a
0.3 million square foot investment property in Tillsonburg, Ontario for $7.2 million. Granite has five other non-core
properties with an aggregate value of $334.2
million, representing 1.8 million square feet of leasable
area located in Canada,
the United States and Germany, that are expected to be sold during
the third quarter of 2018. These include Granite's remaining two
special purpose properties in the United
States for which subsidiaries of Magna International Inc.
have exercised their rights of first refusal to acquire them. The
total sales price of approximately $341.4
million for these six properties represents $65.1 million, or $1.42 per stapled unit, in excess of the reported
values in the 2018 first quarter. The six properties contribute
approximately $23.0 million in annual
revenue;
- As a result of the increase in taxable income generated by the
transactions completed in the 2018 year-to-date and those
anticipated to be completed during the remainder of 2018, Granite
expects to make a special distribution to unitholders in accordance
with its Declaration of Trust. The amount and form of consideration
of such special distribution will be determined later in the
year and will be dependent upon, among other, the actual taxable
income generated for the entire current year. Granite anticipates
declaring any such special distribution on or before December 31, 2018;
- On July 31, 2018, Kevan Gorrie was appointed President and Chief
Executive Officer and also appointed to Granite's boards of
directors and trustees, all effective August
1, 2018. On July 31, 2018,
Michael Forsayeth, who is retiring
at the end of the third quarter as previously announced, resigned
as Granite's Chief Executive Officer and from the boards of
directors and trustees, effective August 1,
2018; and
- At Granite's annual general meeting of unitholders,
Jennifer Warren was elected to
Granite's boards of directors and trustees bringing each boards'
size to nine members.
Financial, Operating and Property Highlights
|
|
Three Months
Ended
June 30,
|
|
Six Months
Ended
June 30,
|
(in millions,
except as noted)
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Revenue(3)
|
|
$
|
62.1
|
|
$
|
60.5
|
|
$
|
123.8
|
|
$
|
121.3
|
Net
income
|
|
$
|
149.2
|
|
$
|
42.8
|
|
$
|
221.6
|
|
$
|
73.1
|
Funds from operations
(''FFO'')(1)
|
|
$
|
37.6
|
|
$
|
31.6
|
|
$
|
88.7
|
|
$
|
71.2
|
Adjusted funds from
operations (''AFFO'')(2)
|
|
$
|
29.4
|
|
$
|
32.5
|
|
$
|
60.5
|
|
$
|
72.8
|
Diluted FFO per
stapled unit(1)
|
|
$
|
0.82
|
|
$
|
0.67
|
|
$
|
1.93
|
|
$
|
1.51
|
Diluted AFFO per
stapled
unit(2)
|
|
$
|
0.64
|
|
$
|
0.69
|
|
$
|
1.32
|
|
$
|
1.54
|
|
|
|
|
|
|
|
|
|
As at June 30 and
December 31,
|
|
|
|
|
|
2018
|
|
2017
|
Fair value of
investment properties(4)
|
|
|
|
|
|
$
|
3,031.2
|
|
$
|
2,733.6
|
Properties held for
sale(4)
|
|
|
|
|
|
$
|
341.4
|
|
$
|
391.4
|
Cash and cash
equivalents
|
|
|
|
|
|
$
|
50.1
|
|
$
|
69.0
|
Total
debt
|
|
|
|
|
|
$
|
817.6
|
|
$
|
741.4
|
Number of
income-producing properties(4)
|
|
|
|
|
|
84
|
|
84
|
Gross leasable area
(''GLA''), square feet(4)
|
|
|
|
|
|
31.8
|
|
29.1
|
Occupancy, by
GLA(4)
|
|
|
|
|
|
97.3%
|
|
98.4%
|
Weighted average
lease term, in years by GLA(4)
|
|
|
|
|
|
5.9
|
|
5.9
|
GRANITE'S COMBINED FINANCIAL RESULTS
For the three month period ended June 30,
2018, revenue increased by $1.6
million to $62.1 million from
$60.5 million in the second quarter
of 2017. The increase in revenue was primarily due to acquisitions,
leasing activity and contractual rent increases, partially offset
by a decrease in revenue from property disposals.
For the six month period ended June 30,
2018, revenue increased by $2.5
million to $123.8 million from
$121.3 million in the prior year
period. The increase in revenue was primarily due to acquisitions,
favourable foreign exchange rates, leasing activity, contractual
rent increases and a lease termination and close-out fee, partially
offset by a decrease in revenue from property disposals and
vacancies.
Granite's net income in the second quarter of 2018 was
$149.2 million compared to
$42.8 million for the second quarter
of 2017. For the six month period ended June
30, 2018, net income was $221.6
million compared to $73.1
million in the prior year period. Net income increased by
$106.4 million and $148.5 million in the three and six month periods
ended June 30, 2018, respectively,
mainly from net fair value gains on investment properties.
FFO for the second quarter of 2018 was $37.6 million compared to $31.6 million in the prior year period. The
$6.0 million increase in FFO was
largely as a result of the proxy contest expenses of $5.9 million incurred in connection with the
June 2017 annual general meeting in
the prior year period.
FFO for the six months ended June 30,
2018 was $88.7 million
compared to $71.2 million in the
prior year period. The $17.5 million
increase in FFO was primarily related to the significant foreign
exchange gain on US dollar cash proceeds from the sale of three
properties in January 2018, the proxy
contest expenses incurred in the prior year period and the increase
in revenue as noted previously.
AFFO for the second quarter of 2018 was $29.4 million compared to $32.5 million in the prior year period. The net
$3.1 million decrease in AFFO was
primarily due to improvement capital expenditures and leasing
commissions paid, partially offset by the increase in FFO noted
above.
AFFO for the six months ended June 30,
2018 was $60.5 million
compared to $72.8 million in the
prior year period. The net $12.3
million decrease in AFFO is primarily due to payments made
in connection with improvement capital expenditures, a tenant
incentive allowance and leasing commissions, partially offset by
the increase in FFO noted above.
A more detailed discussion of Granite's combined financial
results for the three and six month periods ended June 30, 2018 and 2017 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, August 1, 2018 at 8:30 a.m. Eastern time. The number to use for
this call is 1-800-682-8124. Overseas callers should use
+1-416-981-9073. Please call in at least 10 minutes prior to start
time. For anyone unable to listen to the scheduled call, the
rebroadcast numbers will be: North America —
1-800-558-5253 and overseas — +1-416-626-4100
(enter reservation number 21892504) and the rebroadcast
will be available until Wednesday, August
15, 2018.
OTHER INFORMATION
Additional property statistics as at June
30, 2018 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 predominantly industrial,
warehouse and logistics properties in North America and Europe. Granite owns 90 rental income
properties representing approximately 34 million square feet of
leasable area. Through the thoughtful deployment of its balance
sheet and selective dispositions, Granite is continuing to build a
high quality, globally diversified industrial real estate
business.
For further information, please contact Michael Forsayeth, Chief Executive Officer, at
647-925-7600 or Ilias
Konstantopoulos, Chief Financial Officer, at
647-925-7540.
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 find satisfactory
acquisition, joint venture and development opportunities and to
replace the revenue from recently sold properties; Granite's
ability to dispose of any non-core assets on satisfactory terms;
Granite's ability to meet its target occupancy goals; the payment
of and form of consideration of the expected special distribution;
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 2017
dated March 1, 2018, 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, 2017 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.
______________________
Readers are cautioned
that certain terms used in this press release such as FFO, AFFO 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 flow from 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 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 2018 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 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 paid,
tenant improvements 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.
|
|
|
(3)
|
The Trust has
retrospectively applied IFRS 15, Revenue from Contracts with
Customers (see ''NEW ACCOUNTING PRONOUNCEMENTS AND
DEVELOPMENTS'' in Granite's MD&A).
|
|
|
(4)
|
Six investment
properties located in Canada, the United States and Germany were
classified as assets held for sale on the combined financial
statements at June 30, 2018, one of which was sold in July 2018.
Ten investment properties located in Canada and the United States
were classified as assets held for sale on the combined financial
statements at December 31, 2017 and were subsequently sold in
January 2018. Accordingly, references to investment properties and
related property metrics exclude these properties that were
classified as assets held for sale.
|
Reconciliation of
FFO and AFFO to Net Income
|
|
Three Months
Ended
June 30,
|
|
Six Months
Ended
June 30,
|
Attributable to
Stapled Unitholders
|
(in millions, except per unit
amounts)
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
|
|
|
|
|
|
|
|
|
Net income
attributable to stapled unitholders
|
|
$
|
149.2
|
|
$
|
42.9
|
|
$
|
221.5
|
|
$
|
73.1
|
Add
(deduct):
|
|
|
|
|
|
|
|
|
|
Fair value gains on
investment properties, net
|
|
(127.9)
|
|
(17.2)
|
|
(160.2)
|
|
(9.9)
|
|
Fair value losses
(gains) on financial instruments
|
|
(1.4)
|
|
0.7
|
|
0.5
|
|
1.4
|
|
Acquisition
transaction costs
|
|
1.6
|
|
—
|
|
1.7
|
|
—
|
|
|
Loss on sale of
investment properties
|
|
0.1
|
|
—
|
|
1.2
|
|
—
|
|
|
Other income —
settlement award
|
|
(2.3)
|
|
—
|
|
(2.3)
|
|
—
|
|
Current income tax
expense associated with the
|
|
|
|
|
|
|
|
|
|
|
sale of an investment
property
|
|
0.2
|
|
—
|
|
0.2
|
|
—
|
|
Deferred income tax
expense
|
|
18.1
|
|
5.2
|
|
26.1
|
|
6.6
|
FFO
|
[A]
|
$
|
37.6
|
|
$
|
31.6
|
|
$
|
88.7
|
|
$
|
71.2
|
Add
(deduct):
|
|
|
|
|
|
|
|
|
|
Maintenance or
improvement capital
|
|
|
|
|
|
|
|
|
|
|
expenditures
paid
|
|
(6.2)
|
|
(0.3)
|
|
(15.0)
|
|
(0.8)
|
|
Leasing commissions
paid
|
|
(2.3)
|
|
—
|
|
(4.0)
|
|
(0.1)
|
|
Tenant incentives
paid
|
|
(0.2)
|
|
(0.3)
|
|
(9.2)
|
|
(0.5)
|
|
Tenant incentive
amortization
|
|
1.3
|
|
1.4
|
|
2.7
|
|
2.7
|
|
Straight-line rent
amortization
|
|
(0.8)
|
|
0.1
|
|
(2.7)
|
|
0.3
|
AFFO
|
[B]
|
$
|
29.4
|
|
$
|
32.5
|
|
$
|
60.5
|
|
$
|
72.8
|
Basic and Diluted
FFO per stapled unit
|
[A]/[C] and
[A]/[D]
|
$
|
0.82
|
|
$
|
0.67
|
|
$
|
1.93
|
|
$
|
1.51
|
Basic and Diluted
AFFO per stapled unit
|
[B]/[C] and
[B]/[D]
|
$
|
0.64
|
|
$
|
0.69
|
|
$
|
1.32
|
|
$
|
1.54
|
Basic weighted
average number of stapled units
|
[C]
|
45.8
|
|
47.1
|
|
46.0
|
|
47.1
|
Diluted weighted
average number of stapled units
|
[D]
|
45.8
|
|
47.2
|
|
46.1
|
|
47.2
|
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SOURCE Granite Real Estate Investment Trust