TORONTO, Nov. 7, 2017
/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, 2017, and an increase
to its targeted annualized distribution to $2.72 from $2.60
per stapled unit, to be effective upon the declaration of the
distribution in respect of the month of December 2017 and payable in mid-January 2018.
"Operationally it was a steady quarter with strong progress made
on our key strategic priorities of growth and diversification. We
increased the annualized distribution by 4.6% to $2.72 as our cash flow continues to be steady,
strong and growing. We remain focused on our general and
administrative expenses which continue to decline. With the
completion of a significant and FFO(1) accretive
acquisition, the successful lease-up and repositioning of a vacant
property previously tenanted by Magna and the tenanting of the
remaining space in the first phase of our developed property in
Poland, we estimate that beginning
in 2018 we will have effectively reduced our Magna concentration
from a revenue perspective down to approximately 70% from 76% at
the beginning of 2017. Looking forward, we see the potential for
continuing improvement in these metrics supported by the borrowing
capacity available from our strong balance sheet. In addition, as
it relates to finding Granite a new CEO, the Board is actively
engaged with an executive search firm," commented Michael Forsayeth, Chief Executive Officer.
HIGHLIGHTS
Highlights for the three month period ended September 30,
2017, including events subsequent to the quarter, are set out
below:
- Granite's revenue was $55.3
million in the third quarter of 2017 compared to
$56.3 million in the prior year
period. Funds from operations ("FFO")(1) was
$40.5 million ($0.86 per unit) with a corresponding payout
ratio(3) of 79% in the third quarter of 2017 compared to
$42.2 million ($0.90 per unit) and a corresponding payout ratio
of 68% in the third quarter of 2016. Adjusted funds from operations
("AFFO")(2) was $40.1
million ($0.85 per unit) with
a corresponding payout ratio(3) of 80% in the third
quarter of 2017 compared to $41.7
million ($0.89 per unit) and a
corresponding payout ratio of 69% in the third quarter of 2016;
- On October 6, 2017, Granite
completed the acquisition of a 2.2 million square foot portfolio of
three modern warehouse and logistics properties in the United States at a purchase price of
$154.8 million (US$ 122.8 million) which represents an in-going
yield of approximately 6.1%. The properties are occupied by five
tenants who operate in diverse industries with none being in the
automotive sector and the leases have a weighted average term to
maturity of 4.9 years;
- Granite leased 0.2 million square feet of its Novi, Michigan property to a non-Magna tenant
during the third quarter of 2017. The 20-year lease, with a
termination option in the 15th year, is expected to
generate annual revenue of approximately $4.2 million (US$ 3.4
million) starting in the first quarter of 2018. In addition,
Granite renewed a lease with a non-Magna tenant for a 10-year
term, with a termination option in December
2026, for a 0.3 million square foot facility in Peine,
Germany that was due to expire in
October 2019;
- During the third quarter of 2017, Granite purchased 122,767
stapled units for total consideration of $6.1 million pursuant to its normal course issuer
bid. Subsequent to the quarter-end, Granite purchased an additional
89,300 units for total consideration of $4.5 million; and
- Granite will increase its targeted annualized distribution by
4.6% to $2.72 ($0.227 per month) per stapled unit commencing
with the declaration of the monthly distribution for December 2017, marking its sixth consecutive
annual increase and representing a cumulative increase of 36.0% to
its distribution.
Granite's results for the three and nine month periods ended
September 30, 2017 and 2016 are summarized below (all figures
are in Canadian dollars):
|
|
|
(in millions,
except per unit amounts)
|
Three Months
Ended
September 30,
|
|
Nine Months
Ended
September 30,
|
|
|
2017
|
2016
|
|
2017
|
2016
|
|
|
|
|
|
|
Revenue
|
$55.3
|
$56.3
|
|
$165.5
|
$169.1
|
|
|
|
|
|
|
Net income
|
$51.0
|
$150.2
|
|
$124.2
|
$251.2
|
|
|
|
|
|
|
Funds from operations
("FFO")(1)
|
$40.5
|
$42.2
|
|
$111.6
|
$123.5
|
Adjusted funds from
operations ("AFFO")(2)
|
$40.1
|
$41.7
|
|
$112.8
|
$121.5
|
Basic and Diluted FFO
per stapled unit(1)
|
$0.86
|
$0.90
|
|
$2.37
|
$2.62
|
Basic and Diluted
AFFO per stapled unit(2)
|
$0.85
|
$0.89
|
|
$2.39
|
$2.58
|
|
|
|
|
|
|
Fair value of
investment properties (period end)
|
|
|
|
$2,749.0
|
$2,674.5
|
Cash and cash
equivalents (period end)
|
|
|
|
|
$190.9
|
$175.2
|
|
|
|
|
|
|
GRANITE'S COMBINED FINANCIAL RESULTS
For the three month period ended September 30, 2017,
revenue decreased by $1.0 million to
$55.3 million from $56.3 million in the third quarter of 2016. The
decrease was primarily due to the renewal or extension of leases in
Canada and the United States at rental rates which were
lower than the expiring lease rates, as well as the vacancy at a
property in the United States
throughout the third quarter of 2017. These decreases were
partially offset by the revenue associated with the purchase of
building expansions in the United
States in January 2017 and
lease termination and close-out fees earned in the third quarter of
2017.
For the nine month period ended September 30, 2017, revenue
decreased by $3.6 million to
$165.5 million from $169.1 million in the prior year period. The
decrease was related to the renewal and extension of leases as well
as vacancies at properties in the United
States and Germany during
the nine month period. These decreases were partially offset by the
revenue associated with building expansions noted above and the
leasing of three completed development properties in the United States and Poland in the prior year.
Granite's net income in the third quarter of 2017 was
$51.0 million compared to
$150.2 million for the third quarter
of 2016. Net income for the nine month period ended
September 30, 2017 was $124.2
million compared to $251.2
million in the prior year period. Net income decreased by
$99.2 million and $127.0 million in the three and nine month
periods ended September 30, 2017, respectively, compared to
the prior year periods, primarily from a decrease in net fair value
gains on investment properties.
FFO for the third quarter of 2017 was $40.5 million compared to $42.2 million in the prior year period. The
$1.7 million decrease in FFO was
primarily due to the reduction in revenue and net foreign exchange
losses arising from the remeasurement of certain monetary
assets.
FFO for the nine month period ended September 30, 2017 was
$111.6 million compared to
$123.5 million in the prior year
period. The $11.9 million decrease
was primarily related to the reduction in revenue, an increase in
current tax expense and proxy contest expenses incurred in the
second quarter of 2017 in connection with the annual general
meeting.
AFFO for the third quarter of 2017 was $40.1 million compared to $41.7 million in the prior year period. The net
$1.6 million decrease in AFFO was
primarily due to the $1.7 million
decrease in FFO, as noted above.
AFFO for the nine month period ended September 30, 2017 was
$112.8 million compared to
$121.5 million in the prior year
period. The net $8.7 million decrease
was due to the $11.9 million decrease
in FFO, partially offset by reductions in leasing commissions paid
and straight-line rent amortization, both of which primarily
related to the lease-up of two developed properties in the United States in the prior year
period.
A more detailed discussion of Granite's combined financial
results for the three and nine month periods ended
September 30, 2017 and 2016 is contained in Granite's
Management's Discussion and Analysis of Results of Operations and
Financial Position and the unaudited condensed combined financial
statements for those periods and the notes thereto, which are
available through the internet on 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 8, 2017 at 8:30 a.m. Eastern time. The number to use
for this call is 1-800-675-6818. Overseas callers should use
+1-416-981-9073. Please call in at least 10 minutes prior to start
time. The conference call will be chaired by Michael Forsayeth, Chief Executive Officer. 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 21860238) and the rebroadcast will be available until
Monday, November 20, 2017.
OTHER INFORMATION
Additional property statistics as at September 30, 2017
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 ownership and
management of predominantly industrial, warehouse and logistics
properties in North America and
Europe. Granite owns approximately
32 million square feet in over 90 rental income properties. Our
tenant base includes Magna International Inc. and its operating
subsidiaries as our largest tenants, in addition to tenants from
other industries.
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; Granite's
ability to dispose of any non-core assets on satisfactory terms;
the expected revenues from new leasing activity; any further
declines in general and administrative expenses; and the expected
amount of any distributions, including any expected increases, 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 2016 dated March 1, 2017, 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, 2016 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,
leverage ratio, FFO payout ratio, AFFO payout 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 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 2017 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 and is
not reconciled to cash flow from operating activities, as the
calculation of FFO does not consider changes in working capital
items or adjust for certain other non-cash items that are included
in the determination of cash flow from operating activities 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 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 and is not reconciled to cash flow from operating activities,
as the calculation of AFFO does not consider changes in working
capital items or adjust for certain other non-cash items that are
included in the determination of cash flow from operating
activities in accordance with IFRS.
|
|
|
(3)
|
The FFO and AFFO
payout ratios are calculated as distributions declared to
unitholders divided by FFO and AFFO, respectively, in a period. The
FFO and AFFO payout ratios disclosed above include further
adjustments to exclude from FFO and AFFO the proxy contest expenses
and lease termination and close-out fees recorded in the three and
nine month periods ended September 30, 2017. The FFO payout
ratio and AFFO payout ratio are supplemental measures widely used
by analysts and investors in evaluating the sustainability of the
Trust's distributions to stapled unitholders.
|
(in millions,
except per unit amounts)
|
|
Three Months
Ended
September 30,
|
|
Nine Months
Ended
September 30,
|
|
|
2017
|
2016
|
|
2017
|
2016
|
|
|
|
|
|
|
|
Net income
attributable to stapled unitholders
|
|
$51.0
|
$150.3
|
|
$124.1
|
$249.9
|
Add
(deduct):
|
|
|
|
|
|
|
Fair value gains on
investment properties, net
|
|
(17.0)
|
(135.0)
|
|
(26.9)
|
(169.7)
|
|
Fair value losses
(gains) on financial instruments
|
|
(0.9)
|
2.6
|
|
0.4
|
2.4
|
|
Acquisition
transaction costs
|
|
0.3
|
—
|
|
0.3
|
—
|
|
Loss on sale of
investment properties
|
|
—
|
1.1
|
|
—
|
2.4
|
|
Current income tax
expense associated with the sale of investment
properties
|
—
|
0.6
|
|
—
|
1.3
|
|
Deferred income tax
expense
|
|
7.1
|
23.0
|
|
13.7
|
36.4
|
|
Non-controlling
interests relating to the above
|
|
—
|
(0.4)
|
|
—
|
0.8
|
FFO
|
[A]
|
$40.5
|
$42.2
|
|
$111.6
|
$123.5
|
Add
(deduct):
|
|
|
|
|
|
|
|
Maintenance or
improvement capital expenditures
|
|
(0.6)
|
(0.8)
|
|
(1.4)
|
(1.6)
|
|
Leasing commissions
paid
|
|
(1.3)
|
(0.3)
|
|
(1.4)
|
(2.4)
|
|
Tenant incentives
paid
|
|
(0.3)
|
(0.3)
|
|
(0.8)
|
(0.7)
|
|
Tenant incentive
amortization
|
|
1.4
|
1.4
|
|
4.0
|
3.9
|
|
Straight-line rent
amortization
|
|
0.4
|
(0.6)
|
|
0.8
|
(1.7)
|
|
Non-controlling
interests relating to the above
|
|
—
|
0.1
|
|
—
|
0.5
|
AFFO
|
[B]
|
$40.1
|
$41.7
|
|
$112.8
|
$121.5
|
Basic and Diluted
FFO per stapled unit
|
[A]/[C] and
[A]/[D]
|
$0.86
|
$0.90
|
|
$2.37
|
$2.62
|
Basic and Diluted
AFFO per stapled unit
|
[B]/[C] and
[B]/[D]
|
$0.85
|
$0.89
|
|
$2.39
|
$2.58
|
|
|
|
|
|
|
|
Basic number of
stapled units outstanding
|
[C]
|
47.1
|
47.1
|
|
47.1
|
47.1
|
Diluted number of
stapled units outstanding
|
[D]
|
47.2
|
47.1
|
|
47.2
|
47.1
|
SOURCE Granite Real Estate Investment Trust