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, 2020.
HIGHLIGHTS
Highlights for the three month period ended March 31, 2020,
including events subsequent to the quarter, are set out below:
- Granite’s net operating income (“NOI”) was $67.9 million in the
first quarter of 2020 compared to $55.2 million in the prior year
period, an increase of $12.7 million primarily as a result of
acquisition activity in 2019;
- Same property NOI — cash basis(4) increased by 4.2% for the
three month period ended March 31, 2020, excluding the impact of
foreign exchange (4.5% for the 2019 year);
- Funds from operations (“FFO”)(1) was $56.8 million ($1.05 per
unit) in the first quarter of 2020 compared to $40.7 million ($0.89
per unit) in the first quarter of 2019. Included in this quarter’s
FFO is a $2.8 million foreign currency gain on foreign cash and the
reversal of a current income tax provision of $0.8 million relating
to a taxation year that has become statute barred. Excluding these
items, FFO for the first quarter of 2020 would be $53.2 million
($0.98 per unit);
- Adjusted funds from operations (“AFFO”)(2) was $55.6 million
($1.03 per unit) in the first quarter of 2020 compared to $39.8
million ($0.87 per unit) in the first quarter of 2019. Excluding
the foreign currency gain and reversal of the tax provision noted
above, AFFO for the first quarter of 2020 would be $52.0 million
($0.96 per unit);
- AFFO payout ratio(3) was 70% for the first quarter of 2020
compared to 81% in the first quarter of 2019;
- Granite’s net income attributable to stapled unitholders
increased to $81.3 million in the first quarter of 2020 from $78.3
million in the prior year period primarily due to an increase in
net operating income and foreign exchange gains, partially offset
by a decrease in net fair value gains on investment properties
relative to the comparative period;
- During the month of March 2020, Granite repurchased 490,952
stapled units under its normal course issuer bid for consideration
of $25.0 million at an average purchase price of $50.95 per unit,
significantly below its estimated net asset value;
- On March 13, 2020, Granite acquired a property under
development located in Bleiswijk, Netherlands for $28.8 million
(€18.7 million) excluding transaction costs. The property under
development is situated on approximately 13 acres of land in the
Prisma Business Park in Bleiswijk and will be a grocery e-commerce
distribution centre comprising 238,117 square feet of gross
leasable area. The property is in the center of the Randstad
conurbation, situated next to the A12 motorway and providing access
to approximately 8 million consumers within a one hour radius. The
property, expected to be completed and income-producing in
September 2020, is leased to Ahold, a global food-retailer for a
lease term of 10 years and the going-in stabilized yield associated
with the property is 4.2%; and
- On May 1, 2020, Granite closed on the acquisition of the first
of the three state-of-the-art facilities being developed in the
Netherlands as previously announced. Construction of the property
was completed on schedule in March 2020. The property is located at
Oude Graaf 15, Weert, Netherlands, has a gross leaseable area of
238,281 square feet, and was purchased for $32.4 million (€20.8
million) excluding transaction costs. The property is leased,
effective May 1, 2020, to Moonen Packaging, a European leader in
environmentally-friendly packaging on a triple-net lease with a
term of 10 years and the going-in stabilized yield associated with
the property is 4.9%.
GRANITE’S FINANCIAL, OPERATING AND PROPERTY
HIGHLIGHTS
(in millions, except as noted)
For the three months ended March
31,
2020
2019
Net operating income
(“NOI”)................................................................
$ 67.9
$ 55.2
Net income attributable to stapled
unitholders......................................
$ 81.3
$ 78.3
Funds from operations
(“FFO”)(1)...........................................................
$ 56.8
$ 40.7
Adjusted funds from operations
(“AFFO”)(2)...........................................
$ 55.6
$ 39.8
Diluted FFO per stapled
unit(1)...............................................................
$ 1.05
$ 0.89
Diluted AFFO per stapled
unit(2).............................................................
$ 1.03
$ 0.87
Monthly distributions paid per stapled
unit............................................
$ 0.73
$ 0.70
Special distribution paid per stapled
unit...............................................
—
$ 0.30
AFFO payout
ratio(3)...............................................................................
70%
81%
As at March 31 and December 31,
2020
2019
Fair value of investment
properties.......................................................
$ 4,810.0
$ 4,457.9
Cash and cash
equivalents....................................................................
$ 242.1
$ 298.7
Total
debt...............................................................................................
$ 1,309.8
$ 1,250.3
Net leverage
ratio(5)................................................................................
22%
21%
Number of income-producing
properties...............................................
85
85
Gross leasable area (“GLA”), square
feet.............................................
40.0
40.0
Occupancy, by
GLA...............................................................................
99.0%
99.0%
Magna as a percentage of annualized
revenue(7)..................................
41%
42%
Magna as a percentage of
GLA.............................................................
35%
35%
Weighted average lease term in years, by
GLA....................................
6.3
6.5
Overall capitalization
rate(6)....................................................................
6.0%
6.1%
A more detailed discussion of Granite’s combined financial
results for the three month periods ended March 31, 2020 and 2019
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
It is early days and the full impact of the COVID-19 pandemic
cannot be predicted, however Granite believes at this time that its
portfolio and strong liquidity position will allow it to weather
the impact of COVID-19.
Granite’s tenant base is comprised of generally high-quality
credit companies with 66% of total annualized revenue(7)
represented by Granite’s top ten tenants at March 31, 2020.
COVID-19 has had, and will continue to have, a varied impact on
Granite’s tenants depending on their specific businesses. Certain
tenants are seeing increased activity during this COVID-19 period
while other tenants have slowed down or shut down operations fully
for a period of time. It is difficult to predict at this time what
continued impact COVID-19 will have on the businesses of Granite’s
tenants and the resulting direct impact on Granite’s
operations.
With respect to Granite’s operations, the status of rent
collection for the months of April and May and requests for rent
deferral as of today’s date is summarized below:
- 99% of rent due in respect of the month of April has been
received;
- 95% of rent due in respect of the month of May has been
received. The progress of our rent collection for May is on pace
with the rent collection for April;
- Requests have been received for deferrals of rent from 11
tenants for a weighted average period of 3.7 months and for rent
abatements from 6 tenants for a weighted average period of 2.6
months, combined totaling approximately $6.7 million, representing
approximately 2.4% of Granite’s total portfolio based on annualized
revenue(7); and
- No rent deferrals or rent abatements have been granted to date
and Granite is currently in discussion with all tenants in
arrears.
Over the next few months, Granite intends to monitor its
portfolio and to continue to dialogue with its tenants on a
case-by-case basis, where applicable, to understand the ongoing
impact of COVID-19 on its tenants’ operations. The dynamic nature
of the situation, which continues to evolve day-to-day, makes the
longer-term financial impacts on Granite difficult to predict.
As at May 13, 2020, Granite has total liquidity of approximately
$730 million, including its fully undrawn credit facility,
sufficient to meet its current committed acquisitions and
development and construction projects of approximately $216.5
million. Granite’s nearest debt maturity of $250 million occurs in
July 2021 and Granite’s investment property portfolio of over $4.8
billion remains fully unencumbered. Granite believes it is
well-positioned to weather the current market volatility and any
negative impacts on its business, however, Granite will continue to
evaluate and monitor this as the situation prolongs.
With respect to Granite’s outstanding development projects, most
have not been materially impacted to date by COVID-19. Granite
expects potential near-term delays to its on-going projects in
terms of construction spending and expected completion dates.
Granite’s current liquidity positions it well to capitalize on
acquisition opportunities and to continue to execute on its
strategic plan in 2020, however, Granite has temporarily slowed
down its acquisition program and will continue to do so until there
is greater visibility on the impact that COVID-19 will have on its
operations and cash flows. As markets stabilize and the longer-term
impacts of COVID-19 on the portfolio are better understood, Granite
will be prepared to quickly act on its acquisition pipeline and
other opportunities.
Consistent with its usual practice, Granite continues to review
the value of its properties. It is impossible to forecast the
duration and full scope of the economic impact of COVID-19 and
other consequential changes it will have on Granite’s operations,
both in the short-term and in the long-term. Certain aspects of
Granite’s business and operations that could be potentially
impacted include rental income, occupancy, capital expenditures,
future demand for space and market rents, all of which ultimately
impact the underlying valuation of investment properties.
CONFERENCE CALL
Granite will hold a conference call on Thursday, May 14, 2020 at
9:00 a.m. (ET). The toll free number to use for this call is 1
(800) 732-6870. For international callers, please use 1 (416)
981-9007. 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 21954569. The replay will be available until Tuesday, May
26, 2020.
ANNUAL MEETING OF UNITHOLDERS
Granite’s Annual Meeting of Unitholders will take place on June
4, 2020 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/240668827. 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, 2020 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
over 90 investment properties representing approximately 40.3
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 incentives 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.
In the current year period AFFO was calculated by deducting
maintenance or improvement capital expenditures, leasing
commissions and tenant incentives incurred whereas in prior year
periods AFFO was calculated by deducting maintenance or improvement
capital expenditures, leasing commissions and tenant incentives
paid. The AFFO metrics in the comparative period have been updated
to conform to the current period’s presentation. AFFO, basic and
diluted AFFO per unit and AFFO payout ratio for the quarter ended
March 31, 2019 were previously reported as $39.3 million, $0.86 per
unit for both basic and diluted AFFO and 82%, respectively. Both
methods of calculation are in accordance with the REALPAC White
Paper.
Three Months Ended
March 31,
(in millions, except per unit amounts)
2020
2019
Net income attributable to stapled
unitholders.............
$ 81.3
$ 78.3
Add (deduct):
Fair value gains on investment properties,
net...............
(36.0 )
(50.1 )
Fair value losses on financial
instruments......................
1.9
0.1
Loss on sale of investment
properties............................
—
0.7
Deferred income tax
expense.........................................
10.3
10.9
Fair value remeasurement (recovery)
expense relating to the Executive Deferred Stapled Unit
Plan..............
(0.8 )
0.7
Non-controlling interests relating to the
above...............
0.1
0.1
FFO(1)...................................................................................
[A]
$ 56.8
$ 40.7
Add (deduct):
Maintenance or improvement capital
expenditures
incurred........................................................................
(1.1 )
(0.9 )
Leasing commissions
incurred........................................
—
—
Tenant incentives
incurred..............................................
—
(0.2 )
Tenant incentive
amortization.........................................
1.3
1.3
Straight-line rent
amortization.........................................
(1.4 )
(1.1 )
AFFO(2).................................................................................
[B]
$ 55.6
$ 39.8
Basic and Diluted FFO per stapled
unit..........................
[A]/[C] and [A]/[D]
$ 1.05
$ 0.89
Basic and Diluted AFFO per stapled
unit.......................
[B]/[C] and [B]/[D]
$ 1.03
$ 0.87
Basic weighted average number of
stapled units.........
[C]
54.0
45.7
Diluted weighted average number of
stapled units......
[D]
54.1
45.7
(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 2020 or December 2019, as applicable, recognized in
accordance with IFRS, multiplied by 12 months.
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: 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 impact of COVID-19 on
Granite’s on-going projects in terms of construction spending and
expected completion dates; the repayment of rent deferrals; the
progress of Granite’s ongoing rent collection in May 2020; 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; the expected construction of a grocery e-commerce
distribution facility in Bleiswijk, Netherlands; 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;
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 as 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 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/20200513005891/en/
Teresa Neto, Chief Financial Officer, at (647) 925 7560
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