TORONTO, Nov. 6, 2018 /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 nine month periods ended
September 30, 2018, and an increase to its targeted
annualized distribution to $2.80 from
$2.72 per unit, to be effective
upon the distribution payable in mid‑January 2019.
"The Granite team continues to successfully execute on our
corporate objectives for 2018, including the reduction in Magna
concentration and conversely the growth in modern distribution and
e‑commerce markets and assets. The sale of the special purpose
assets announced so far in 2018 will impact FFO(1) and
AFFO(2) in the short term, but the resultant liquidity
further positions us to successfully capitalize on strategic growth
opportunities in our target markets in 2019 consistent with our
strategic plan. The announced increase in our distribution to an
annualized target of $2.80 per unit
for 2019 and longer term target AFFO payout ratio(3) of
80% reflect our confidence in achieving those objectives,"
commented Kevan Gorrie, President
and Chief Executive Officer.
HIGHLIGHTS
Highlights for the three month period ended September 30,
2018, including events subsequent to the quarter, are set
out below:
- Granite's revenue was $63.8
million in the third quarter of 2018 compared to
$60.8 million in the prior year
period;
- Funds from operations ("FFO")(1) was $39.1 million ($0.86 per unit) in the third quarter of 2018
compared to $40.5 million
($0.86 per unit) in the third quarter
of 2017, which included $1.6 million
($0.03 per unit) relating to lease
termination and close‑out fees in revenue;
- Adjusted funds from operations ("AFFO")(2) was
$37.7 million ($0.82 per unit) in the third quarter of 2018
compared to $40.1 million
($0.85 per unit) in the third quarter
of 2017;
- On September 13, 2018, Granite
completed the sale of its two U.S. special purpose properties
located in Piedmont, South
Carolina and Clinton,
Tennessee for approximately $271
million that comprised 1.6 million square feet and generated
annualized revenue of $18.3 million.
Subsequent to its previous announcement on July 30, 2018, Granite consented to the
rescission by Magna of its exercise of its right of first refusal
to purchase these properties and agreed to complete the sales with
the original third party buyer on terms more favourable to Granite.
Granite also sold four additional properties (including one
subsequent to the third quarter) for approximately $71 million that comprised 0.5 million square
feet and generated annualized revenue of $4.7 million;
- On July 12, 2018, Granite
acquired a 0.7 million square foot property in Germany for $82.7
million at an in‑going yield of 5.4% and a weighted average
lease term of 4.7 years. During the third quarter, Granite
committed to acquire a property under development in the state of
Texas, making a US$20.0 million deposit in connection therewith.
This commitment to purchase is subject to specific confidentiality
provisions and customary closing conditions including certain
purchase rights in favour of the tenant and is expected to close
concurrently with the lease commencement in the third quarter of
2019 following construction of the building. On November 1, 2018, Granite acquired approximately
13 acres of development land in West
Jefferson, Ohio;
- Effective August 1, 2018,
Kevan Gorrie became Granite's new
President and Chief Executive Officer;
- On November 6, 2018, Granite
approved an increase to its targeted annualized distribution by
2.9% to $2.80 ($0.233 per month) per stapled unit commencing
with the monthly distribution payable in mid‑January 2019, marking
its seventh consecutive annual increase and representing a
cumulative increase of 40.0% to its distribution; and
- Granite anticipates that it will declare a special distribution
to unitholders in the fourth quarter of 2018 as a result of the
increase in taxable income generated by the sale transactions
completed during the nine month period ended September 30, 2018 and those anticipated to be
completed during the fourth quarter of 2018. Granite intends to
make the special distribution payable partially in cash and
partially in units, to provide unitholders with cash to fund the
additional tax associated with the special distribution, while
preserving most of the net cash proceeds generated by the sale
transactions for reinvestment in the acquisition and development of
real estate properties in keeping with its strategy.
The amount of Granite's special distribution is expected to be
approximately $1.20 per unit based on
the number of units outstanding as of the date hereof which will be
declared payable on or before December 31, 2018 to unitholders
of record on the date the distribution becomes payable.
Granite intends to make a portion of the special distribution
payable by the issuance of additional units (subject to receipt of
all regulatory approvals) based on the closing market price of the
units on the record date of the distribution. Immediately following
the special distribution, the outstanding units of Granite will be
consolidated such that each unitholder will hold, after the
consolidation, the same number of units as such unitholder held
before the special distribution. The amount of the special
distribution payable in units will add to the tax cost basis of
unitholders' consolidated units. The remaining portion of the
special distribution will be payable in cash to cover any
non‑resident withholding taxes or other income tax obligations that
may arise for unitholders from the additional taxable income
distributed via the special distribution. A further update will be
provided when the special distribution is declared including
confirmation of the precise amount and mix of consideration of the
special distribution.
Granite cautions that the foregoing comments are not intended to
be, and should not be construed as, legal or tax advice to any
particular unitholder. Granite recommends that unitholders consult
their own tax advisors regarding the income tax consequences to
them of this anticipated special distribution and related unit
consolidation.
Financial, Operating and Property Highlights
|
|
Three Months
Ended
September 30,
|
|
Nine Months
Ended
September 30,
|
(in millions,
except as noted)
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Revenue(4)
|
|
$63.8
|
|
$60.8
|
|
$187.6
|
|
$182.1
|
Net income
attributable to stapled unitholders
|
|
$157.8
|
|
$51.0
|
|
$379.3
|
|
$124.1
|
Funds from operations
("FFO")(1)
|
|
$39.1
|
|
$40.5
|
|
$128.0
|
|
$111.6
|
Adjusted funds from
operations ("AFFO")(2)
|
|
$37.7
|
|
$40.1
|
|
$98.3
|
|
$112.8
|
Diluted FFO per
stapled unit(1)
|
|
$0.86
|
|
$0.86
|
|
$2.79
|
|
$2.37
|
Diluted AFFO per
stapled unit(2)
|
|
$0.82
|
|
$0.85
|
|
$2.14
|
|
$2.39
|
|
|
|
|
|
|
|
|
|
As at
September 30 and December 31,
|
|
|
|
|
2018
|
|
2017
|
Fair value of
investment properties(5)
|
|
|
|
|
$3,198.0
|
|
$2,733.6
|
Assets held for
sale(5)
|
|
|
|
|
$17.0
|
|
$391.4
|
Cash and cash
equivalents
|
|
|
|
|
$192.7
|
|
$69.0
|
Total debt
|
|
|
|
|
$715.9
|
|
$741.4
|
Number of
income‑producing properties(5)
|
|
|
|
|
85
|
|
84
|
Gross leasable area
("GLA"), square feet(5)
|
|
|
|
|
32.5
|
|
29.1
|
Occupancy, by
GLA(5)
|
|
|
|
|
97.3%
|
|
98.4%
|
Magna as a percentage
of annualized revenue(5)
|
|
|
|
|
57%
|
|
71%
|
Magna as a percentage
of GLA(5)
|
|
|
|
|
48%
|
|
61%
|
Weighted average
lease term, in years by GLA(5)
|
|
|
|
|
5.9
|
|
5.9
|
Overall
capitalization rate(5)(6)
|
|
|
|
|
6.8%
|
|
7.6%
|
GRANITE'S COMBINED FINANCIAL RESULTS
For the three month period ended September 30, 2018,
revenue increased by $3.0 million to $63.8 million from $60.8 million in the third quarter of 2017.
The increase in revenue was primarily due to acquisitions and
leasing activity, partially offset by a decrease in revenue from
property dispositions.
For the nine month period ended September 30, 2018, revenue
increased by $5.5 million to
$187.6 million from $182.1 million in the prior year period. The
increase in revenue was primarily due to acquisitions, favourable
foreign exchange rates, leasing activity and contractual rent
increases, partially offset by a decrease in revenue from property
dispositions and vacancies.
Granite's net income attributable to stapled unitholders in the
third quarter of 2018 was $157.8 million compared to $51.0 million for the third quarter of 2017.
For the nine month period ended September 30, 2018, net income
attributable to stapled unitholders was $379.3 million compared to $124.1 million in the prior year period. Net
income increased by $106.8 million and $255.2 million in the three and nine months
ended September 30, 2018 compared to the prior year periods,
respectively, mainly from net fair value gains on investment
properties.
FFO for the third quarter of 2018 was $39.1 million compared to $40.5 million in the prior year period. The
$1.4 million decrease in FFO was
largely as a result of increased general and administrative
expenses associated with Granite's former Chief Executive Officer,
higher interest expense and net foreign exchange losses, partially
offset by the increase in revenue as noted previously.
FFO for the nine months ended September 30, 2018 was
$128.0 million compared to
$111.6 million in the prior year
period. The $16.4 million
increase in FFO was primarily related to the significant foreign
exchange gain on the remeasurement of US dollar cash proceeds from
the sale of three properties in January 2018, the proxy
contest expenses incurred in connection with the annual general
meeting in the prior year period and the increase in revenue as
noted previously.
AFFO for the third quarter of 2018 was $37.7 million compared to $40.1 million in the prior year period. The
net $2.4 million decrease in
AFFO was primarily due to the decrease in FFO noted above and
improvement capital expenditures paid.
AFFO for the nine months ended September 30, 2018 was
$98.3 million compared to
$112.8 million in the prior year
period. The net $14.5 million
decrease in AFFO was primarily due to payments made in connection
with improvement capital expenditures, tenant incentives 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 nine month periods ended
September 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,
November 7, 2018 at 8:30 a.m. Eastern time. The number to
use for this call is 1‑800‑901‑3958. Overseas callers should
use +1‑416‑641‑6700. 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 21897508) and the rebroadcast will be
available until Monday, November 19, 2018.
OTHER INFORMATION
Additional property statistics as at September 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 over 85 investment
properties representing approximately 33 million
square feet of leasable area.
For further information, please contact Kevan Gorrie, President and Chief Executive
Officer, at 647‑925‑7580 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 strategically redeploy the proceeds from
recently sold properties; the expected completion of the
acquisition of a property in the United States and the
construction and leasing of a building thereon; 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 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 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 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 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 AFFO payout ratio
is calculated as distributions declared to unitholders divided by
AFFO in a period. The AFFO payout ratio is a supplemental measure
widely used by analysts and investors in evaluating the
sustainability of the Trust's distributions to stapled
unitholders.
|
|
|
(4)
|
The Trust has
retrospectively applied IFRS 15, Revenue from Contracts
with Customers (see "NEW ACCOUNTING PRONOUNCEMENTS AND
DEVELOPMENTS" in Granite's MD&A).
|
|
|
(5)
|
Assets held for sale
are excluded from investment properties and related property
metrics. Accordingly, two such assets that were held for sale at
September 30, 2018 and 10 such assets that were held for
sale at December 31, 2017 were excluded from investment
properties and related property metrics at September 30, 2018 and
December 31, 2017, respectively.
|
|
|
(6)
|
Overall
capitalization rate is calculated as stabilized net operating
income (property revenue less property expenses) divided by the
fair value of the property.
|
|
|
Three Months
Ended
September 30,
|
|
Nine Months
Ended
September 30,
|
Reconciliation of
FFO and AFFO to Net Income Attributable to Stapled
Unitholders (in millions, except per unit
amounts)
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Net income
attributable to stapled unitholders
|
|
$157.8
|
|
$51.0
|
|
$379.3
|
|
$124.1
|
Add
(deduct):
|
|
|
|
|
|
|
|
|
Fair value gains on
investment properties, net
|
|
(141.6)
|
|
(17.0)
|
|
(301.8)
|
|
(26.9)
|
Fair value losses
(gains) on financial
instruments
|
|
(1.4)
|
|
(0.9)
|
|
(0.9)
|
|
0.4
|
Acquisition
transaction costs......
|
|
5.8
|
|
0.3
|
|
7.6
|
|
0.3
|
Loss on sale of
investment properties
|
|
4.1
|
|
—
|
|
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......
|
|
14.3
|
|
7.1
|
|
40.4
|
|
13.7
|
Non‑controlling
interests relating to the above
|
|
0.1
|
|
—
|
|
0.1
|
|
—
|
FFO
|
[A]
|
$39.1
|
|
$40.5
|
|
$128.0
|
|
$111.6
|
Add
(deduct):
|
|
|
|
|
|
|
|
|
Maintenance or
improvement capital expenditures
paid
|
|
(1.6)
|
|
(0.6)
|
|
(16.6)
|
|
(1.4)
|
Leasing commissions
paid
|
|
—
|
|
(1.3)
|
|
(4.0)
|
|
(1.4)
|
Tenant incentives
paid
|
|
(0.5)
|
|
(0.3)
|
|
(9.8)
|
|
(0.8)
|
Tenant incentive
amortization
|
|
1.4
|
|
1.4
|
|
4.1
|
|
4.0
|
Straight‑line rent
amortization
|
|
(0.7)
|
|
0.4
|
|
(3.4)
|
|
0.8
|
AFFO
|
[B]
|
$37.7
|
|
$40.1
|
|
$98.3
|
|
$112.8
|
Basic and Diluted
FFO per stapled
unit
|
[A]/[C] and
[A]/[D]
|
$0.86
|
|
$0.86
|
|
$2.79
|
|
$2.37
|
Basic and Diluted
AFFO per stapled
unit
|
[B]/[C] and
[B]/[D]
|
$0.82
|
|
$0.85
|
|
$2.14
|
|
$2.39
|
Basic weighted
average number of stapled
units
|
[C]
|
45.7
|
|
47.1
|
|
45.9
|
|
47.1
|
Diluted weighted
average number of stapled
units
|
[D]
|
45.8
|
|
47.2
|
|
45.9
|
|
47.2
|
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SOURCE Granite Real Estate Investment Trust