TORONTO, March 1, 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 month
period and year ended December 31, 2017.
"Granite completed 2017 with a strong fourth quarter, capping
off another successful year that saw strong unitholder returns, an
increase in net asset value and acquisition growth. Following our
recent property sales in 2018, Granite's net leverage ratio
stands at 10% with liquidity of approximately $820 million. We have a pipeline of acquisition
opportunities and with a rising interest rate environment, Granite
has positioned itself to seize the market opportunities within its
geographic footprint and execute on its strategy to build a high
quality, globally diversified industrial real estate business. In
addition, the Board is well advanced in its search for Granite's
new CEO," commented Michael
Forsayeth, Chief Executive Officer.
HIGHLIGHTS
Highlights for the three month period and year ended
December 31, 2017, including events subsequent to the quarter,
are set out below:
- Granite's revenue was $57.2
million in the fourth quarter of 2017 compared to
$54.3 million in the prior year
period. Funds from operations ("FFO")(1) was
$41.6 million ($0.89 per unit) with a corresponding payout
ratio(3) of 75% in the fourth quarter of 2017 compared
to $26.2 million ($0.56 per unit) and a corresponding payout ratio
of 77% in the fourth quarter of 2016. Adjusted funds from
operations ("AFFO")(2) was $32.6
million ($0.69 per unit) with
a corresponding payout ratio of 95% in the fourth quarter of
2017 compared to $27.8 million
($0.59 per unit) and a corresponding
payout ratio of 74% in the fourth quarter of 2016;
- For the year 2017, Granite's revenue was $222.6 million compared to $223.4 million in the prior year. FFO was
$153.2 million ($3.25 per unit) with a corresponding payout ratio
of 78% in the 2017 year compared to $149.7
million ($3.18 per unit) and a
corresponding payout ratio of 71% in 2016. AFFO was $145.4 million ($3.09 per unit) with a corresponding payout ratio
of 82% in the year 2017 compared to $149.3
million ($3.17 per unit) and a
corresponding payout ratio of 71% in the prior year;
- 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 for consideration of
$154.7 million (US$ 122.8 million) at an in-going yield of
approximately 6.1%;
- In January 2018, Granite sold 10
investment properties (including three special purpose properties)
located in Canada and the United States for aggregate gross proceeds
of approximately $391 million. The 10
properties represented approximately 3.3 million square feet of
Granite's property portfolio and contributed approximately
$25.6 million in revenue in 2017. As
a result of the sale, gross leasable area leased to Magna decreased
from 71% to 61% during the year with the corresponding revenue from
Magna decreasing from 76% to 71% during the year;
- Granite increased its 2018 targeted annualized distribution by
4.6% to $2.72 ($0.227 per month) per stapled unit commencing
with the monthly distribution paid in January 2018, marking its sixth consecutive
annual increase and representing a cumulative increase of 36.0% to
its distribution;
- Subsequent to December 31, 2017,
the Trust entered into a new five-year unsecured revolving credit
facility in the amount of $500.0
million that matures on February 1,
2023. The new facility replaced Granite's $250.0 million credit facility;
- Since inception of the normal course issuer bid in May 2017, and up to March
1, 2018, the Trust has acquired a total of 1.1
million stapled units for $56.0
million at an average price of $49.41 per unit; and
- During the year, Granite renewed, extended or entered into 21
leases representing an aggregate of 3.4 million square feet with
annual revenue of approximately $22.0
million. This includes a new lease executed with a non-Magna
tenant for 0.2 million square feet of leaseable area at the vacant
Novi, Michigan property. The 20
year lease, with a termination option in the 15th year, is expected
to generate annual revenue of $4.3
million (US$ 3.4 million).
Subsequent to year end, Granite renewed or extended three
additional leases representing 0.4 million square feet and
approximately $4.0 million in
revenue.
Granite's results for the three month periods and years ended
December 31, 2017 and 2016 are summarized below (all figures
are in Canadian dollars):
(in millions,
except per unit amounts)
|
Three Months
Ended
December 31,
|
|
Years Ended
December 31,
|
|
2017
|
2016
|
|
2017
|
2016
|
|
|
|
|
|
|
Revenue
|
$57.2
|
$54.3
|
|
$222.6
|
$223.4
|
|
|
|
|
|
|
Net income
|
$233.6
|
$29.5
|
|
$357.7
|
$280.7
|
|
|
|
|
|
|
Funds from operations
("FFO")(1)
|
$41.6
|
$26.2
|
|
$153.2
|
$149.7
|
Adjusted funds from
operations ("AFFO")(2)
|
$32.6
|
$27.8
|
|
$145.4
|
$149.3
|
Basic and Diluted FFO
per stapled unit(1)
|
$0.89
|
$0.56
|
|
$3.25
|
$3.18
|
Basic and Diluted
AFFO per stapled unit(2)
|
$0.69
|
$0.59
|
|
$3.09
|
$3.17
|
|
|
|
|
|
|
Fair value of
investment properties (period end)
|
|
|
|
$2,733.6
|
$2,653.1
|
Properties held for
sale (period end)
|
|
|
|
$391.4
|
—
|
Cash and cash
equivalents (period end)
|
|
|
|
$69.0
|
$246.2
|
Total debt (period
end)
|
|
|
|
$741.4
|
$657.4
|
GRANITE'S COMBINED FINANCIAL RESULTS
For the three month period ended December 31, 2017, revenue
increased by $2.9 million to
$57.2 million from $54.3 million in the fourth quarter of 2016. The
increase was primarily due to the acquisition of three
properties in October 2017 and
the revenue associated with the purchase of building expansions in
the United States in January 2017, partially offset by vacancies
at properties in the United
States and Germany during
the year.
For the year ended December 31, 2017, revenue decreased by
$0.8 million to $222.6 million from $223.4
million in the prior year. The decrease was primarily
related 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 vacancies and the disposal of
properties in the United States
and Germany. These decreases were
partially offset by the revenue associated with
the acquisition of three properties and the purchase of
building expansions in the United
States noted above as well as contractual rent
increases.
Granite's net income in the fourth quarter of 2017 was
$233.6 million compared to
$29.5 million for the fourth quarter
of 2016. Net income for the year ended December 31, 2017 was
$357.7 million compared to
$280.7 million in the prior year. Net
income increased by $204.1 million
and $77.0 million in the three month
period and year ended December 31, 2017, respectively,
compared to the prior year periods, primarily from an increase in
net fair value gains on investment properties, a decrease in
deferred tax expense and the prior year periods included early
redemption costs associated with unsecured debentures that were due
to mature in 2018. The net fair value gains on investment
properties in the three month period and year ended December 31, 2017 were primarily
attributable to i) the realized increase in fair value reflected
from the sale price of the 10 properties disposed of in
January 2018 and the higher valuation
implied on certain remaining special purpose properties from
the pricing realized and the liquidity potential demonstrated
from the sale and ii) a compression in discount and terminal
capitalization rates for certain properties located in Canada.
FFO for the fourth quarter of 2017 was $41.6 million compared to $26.2 million in the prior year period. The
$15.4 million increase in FFO was
primarily due to the costs associated with the early redemption of
debentures in the prior year and the increase in revenue.
FFO for the year ended December 31, 2017 was $153.2 million compared to $149.7 million in the prior year. The
$3.5 million increase was primarily
related to the costs associated with the early redemption of
debentures in the prior year, partially offset by proxy contest
expenses incurred in 2017 in connection with the annual general
meeting and an increase in current tax expense.
AFFO for the fourth quarter of 2017 was $32.6 million compared to $27.8 million in the prior year period. The net
$4.8 million increase in AFFO was
primarily due to the $15.4 million
increase in FFO, as noted above, partially offset by i) capital
expenditures largely relating to an improvement project at a
recently leased-up property in the United
States and to a lesser extent, improvement capital
expenditures at properties in Canada, as well as ii) leasing commissions
paid for the lease-up at the aforementioned property in
the United States.
AFFO for the year ended December 31, 2017 was $145.4 million compared to $149.3 million in the prior year. The net
$3.9 million decrease was due to
improvement capital expenditures for a recently leased-up property
in the United States, partially
offset by the $3.5 million increase
in FFO, as noted above, and a decrease in straight-line rent
amortization primarily associated with the lease-up of two
developed properties in the United
States in the prior year.
A more detailed discussion of Granite's combined financial
results for the three month periods and years ended
December 31, 2017 and 2016 is contained in Granite's
Management's Discussion and Analysis of Results of Operations and
Financial Position and the audited combined financial statements
for the year ended December 31, 2017 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 Friday, March 2, 2018 at 8:30 a.m. Eastern time. The number to use for
this call is 1-800-954-0689. Overseas callers should use
+1-416-981-9006. 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 21882252) and the rebroadcast will be available until
Wednesday, March 14, 2018.
OTHER INFORMATION
Additional property statistics as at December 31, 2017 have
been posted to our website at
http://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 has filed its annual report on Form 40-F for the year
ended December 31, 2017 with the SEC.
The Form 40-F, including the audited combined financial statements,
included therein, is available at http://www.granitereit.com. Hard
copies of the audited combined financial statements are available
free of charge on request by calling 647-925-7500 or writing
to:
Investor Inquiries
77 King Street West, Suite 4010,
P.O. Box 159
Toronto-Dominion Centre
Toronto, Ontario
M5K 1H1
For further information about Granite, please see our website at
www.granitereit.com.
ABOUT GRANITE
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
29 million square feet in over 80 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, 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,
net 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.
|
(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 FFO and AFFO
payout ratios are calculated as distributions declared to
unitholders divided by FFO and AFFO, respectively, in a period. FFO
payout ratio and AFFO payout ratios may exclude revenue or expenses
incurred during a period that are non-recurring and can be a source
of variance between periods. 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.
|
(4)
|
The net leverage
ratio is calculated as the 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 that
Granite believes is useful in evaluating the Trust's degree of
financial leverage, borrowing capacity and the relative strength of
its balance sheet.
|
Reconciliation of
FFO and AFFO to Net Income
|
|
|
|
|
Attributable to
Stapled Unitholders
|
|
|
|
|
|
|
|
|
|
(in millions,
except per unit amounts)
|
|
Three Months
Ended
December 31,
|
|
Years Ended
December 31,
|
|
|
2017
|
2016
|
|
2017
|
2016
|
|
|
|
|
|
|
|
Net income
attributable to stapled unitholders
|
|
$233.6
|
$29.4
|
|
$357.7
|
$279.3
|
Add
(deduct):
|
|
|
|
|
|
|
|
Fair value gains on
investment properties, net
|
|
(185.2)
|
(6.2)
|
|
(212.1)
|
(175.9)
|
|
Fair value losses
(gains) on financial instruments
|
|
0.4
|
(1.2)
|
|
0.8
|
1.2
|
|
Acquisition
transaction costs
|
|
0.4
|
—
|
|
0.7
|
—
|
|
Loss on sale of
investment properties
|
|
0.4
|
—
|
|
0.4
|
2.4
|
|
|
|
|
|
|
|
|
|
Current income tax
expense associated with the sale of investment
properties
|
|
—
|
—
|
|
—
|
1.3
|
|
Deferred income tax
expense (recovery)
|
|
(8.0)
|
4.3
|
|
5.7
|
40.7
|
|
Non-controlling
interests relating to the above
|
|
—
|
(0.1)
|
|
—
|
0.7
|
FFO
|
[A]
|
$41.6
|
$26.2
|
|
$153.2
|
$149.7
|
Add
(deduct):
|
|
|
|
|
|
|
|
Maintenance or
improvement capital expenditures
|
|
(9.3)
|
(0.5)
|
|
(10.7)
|
(2.1)
|
|
Leasing commissions
paid
|
|
(1.2)
|
(0.1)
|
|
(2.6)
|
(2.5)
|
|
Tenant incentives
paid
|
|
(0.2)
|
(0.5)
|
|
(1.0)
|
(1.2)
|
|
Tenant incentive
amortization
|
|
1.4
|
1.3
|
|
5.4
|
5.2
|
|
Straight-line rent
amortization
|
|
0.3
|
1.3
|
|
1.1
|
(0.4)
|
|
Non-controlling
interests relating to the above
|
|
—
|
0.1
|
|
—
|
0.6
|
AFFO
|
[B]
|
$32.6
|
$27.8
|
|
$145.4
|
$149.3
|
|
|
|
|
|
|
|
Basic and Diluted
FFO per stapled unit
|
[A]/[C] and
[A]/[D]
|
$0.89
|
$0.56
|
|
$3.25
|
$3.18
|
Basic and Diluted
AFFO per stapled unit
|
[B]/[C] and
[B]/[D]
|
$0.69
|
$0.59
|
|
$3.09
|
$3.17
|
|
|
|
|
|
|
|
Basic number of
stapled units outstanding
|
[C]
|
46.9
|
47.1
|
|
47.1
|
47.1
|
Diluted number of
stapled units outstanding
|
[D]
|
47.0
|
47.1
|
|
47.1
|
47.1
|
FFO and AFFO
Payout Ratios
|
|
|
|
|
|
Three
Months
Ended
December 31,
|
|
Years Ended
December 31,
|
(in millions, except
as noted)
|
|
2017
|
2016
|
|
2017
|
2016
|
Distributions
declared to unitholders
|
[A]
|
$31.0
|
$29.3
|
|
$123.1
|
$114.3
|
|
FFO
|
|
41.6
|
26.2
|
|
153.2
|
149.7
|
|
Add
(deduct):
|
|
|
|
|
|
|
|
|
Early redemption
costs of unsecured debentures
|
|
—
|
11.9
|
|
—
|
11.9
|
|
|
Proxy contest
expenses
|
|
—
|
—
|
|
5.9
|
—
|
|
|
Lease termination and
close-out fees
|
|
—
|
—
|
|
(1.6)
|
—
|
FFO adjusted for
the above
|
[B]
|
$41.6
|
$38.1
|
|
$157.5
|
$161.6
|
|
AFFO
|
|
32.6
|
27.8
|
|
145.4
|
149.3
|
|
Add
(deduct):
|
|
|
|
|
|
|
|
|
Early redemption
costs of unsecured debentures
|
|
—
|
11.9
|
|
—
|
11.9
|
|
|
Proxy contest
expenses
|
|
—
|
—
|
|
5.9
|
—
|
|
|
Lease termination and
close-out fees
|
|
—
|
—
|
|
(1.6)
|
—
|
AFFO adjusted for
the above
|
[C]
|
$32.6
|
$39.7
|
|
$149.7
|
$161.2
|
FFO payout
ratio
|
[A]/[B]
|
75%
|
77%
|
|
78%
|
71%
|
AFFO payout
ratio
|
[A]/[C]
|
95%
|
74%
|
|
82%
|
71%
|
SOURCE Granite REIT Holdings LP