Granite Real Estate Investment Trust and Granite REIT Inc.
(TSX: GRT.UN; NYSE: GRP.U) (“Granite” or the “Trust”) announced
today its combined results for the three and six month periods
ended June 30, 2023. Further, Granite announced that today it
released its 2022 Environmental, Social, Governance + Resilience
(ESG+R) Report.
SECOND QUARTER 2023 HIGHLIGHTS
Highlights for the three month period ended June 30, 2023 are
set out below:
Financial:
- Granite's net operating income ("NOI") was $108.6 million in
the second quarter of 2023 compared to $92.8 million in the prior
year period, an increase of $15.8 million primarily as a result of
net acquisition activity, the completion of developments and
expansions beginning in the second quarter of 2022, and contractual
rent adjustments;
- Same property NOI - cash basis(4) increased by 7.7% for the
second quarter of 2023, excluding the impact of foreign
exchange;
- Funds from operations ("FFO")(1) was $77.6 million ($1.21 per
unit) in the second quarter of 2023 compared to $72.1 million
($1.09 per unit) in the second quarter of 2022;
- Adjusted funds from operations ("AFFO")(2) was $69.5 million
($1.09 per unit) in the second quarter of 2023 compared to $68.2
million ($1.04 per unit) in the second quarter of 2022;
- During the three month period ended June 30, 2023, the Canadian
dollar weakened against the US dollar and the Euro relative to the
prior year period. The impact of foreign exchange on FFO for the
three month period ended June 30, 2023, relative to the same period
in 2022, was $0.07 per unit, and for AFFO, the impact of foreign
exchange was $0.06 per unit;
- AFFO payout ratio(3) was 73% for the second quarter of 2023
compared to 75% in the second quarter of 2022;
- Granite recognized $13.5 million in net fair value losses on
investment properties in the second quarter of 2023 which were
primarily attributable to the expansion in discount and terminal
capitalization rates across selective Granite markets in response
to rising interest rates, partially offset by fair market rent
increases across the GTA and selective U.S. and European markets,
the renewal of one industrial property in Germany, the appreciation
of land values at Granite’s development properties and land held
for development in Brantford, Ontario, and the stabilization of
four properties under development in the U.S., which were completed
and transferred to income-producing properties during the second
quarter of 2023. The value of investment properties was decreased
by unrealized foreign exchange losses of $142.0 million in the
second quarter of 2023 primarily resulting from the relative
strengthening of the Canadian dollar against the Euro and the US
dollar as at June 30, 2023; and
- Granite's net income in the second quarter of 2023 was $62.5
million in comparison to net loss of $122.3 million in the prior
year period primarily due to a positive change in the fair value of
investment properties of $237.8 million and a $15.8 million
increase in net operating income as noted above, partially offset
by a $57.4 million increase in income tax expense.
Developments:
- During the quarter, at its recently completed development in
Lebanon, Tennessee, Granite signed a lease for 112,625 square feet
with a wholesale distribution company commencing in September 2023
for a 5 year term. The development, which is comprised of three
properties totaling 509,250 square feet, is now 35% leased.
Operations:
- During the second quarter of 2023, Granite achieved average
rental rate spreads of 15% over expiring rents representing
approximately 1,936,000 square feet of renewals completed in the
quarter.
- During the quarter, Granite signed a new lease for
approximately 44,000 square feet with the existing tenant at its
property in Novi, Michigan to expand into a portion of the
previously vacant space.
Financing:
- On June 9, 2023, Granite repaid in full the secured
construction loan outstanding on its recently completed income
producing property in Houston, USA which had an outstanding balance
of $56.2 million (US$42.1 million), with proceeds from the
unsecured revolving credit facility.
GRANITE’S FINANCIAL, OPERATING AND
PROPERTY HIGHLIGHTS
Three Months Ended
June 30,
Six Months Ended
June 30,
(in millions, except as noted)
2023
2022
2023
2022
Revenue
$
130.3
$
109.8
$
259.9
$
218.4
Net operating income ("NOI")
$
108.6
$
92.8
$
216.0
$
184.0
Net income (loss) attributable to stapled
unitholders
$
62.5
$
(122.3)
$
72.2
$
375.4
Funds from operations ("FFO")(1)
$
77.6
$
72.1
$
157.2
$
141.5
Adjusted funds from operations
("AFFO")(2)
$
69.5
$
68.2
$
144.6
$
134.1
Diluted FFO per stapled unit(1)
$
1.21
$
1.09
$
2.46
$
2.15
Diluted AFFO per stapled unit(2)
$
1.09
$
1.04
$
2.26
$
2.03
Monthly distributions paid per stapled
unit
$
0.80
$
0.78
$
1.60
$
1.55
AFFO payout ratio(3)
73 %
75 %
71 %
76 %
As at June 30, 2023 and December 31,
2022
2023
2022
Fair value of investment properties(9)
$
8,833.1
$
8,839.6
Assets held for sale(9)
$
20.5
$
41.2
Cash and cash equivalents
$
119.2
$
135.1
Total debt(5)
$
2,954.4
$
2,930.3
Net leverage ratio(6)
32 %
32 %
Number of income-producing
properties(9)
137
128
Gross leasable area (“GLA”), square
feet(9)
62.9
59.4
Occupancy, by GLA
96.3 %
99.6 %
Magna as a percentage of annualized
revenue(8)
26 %
26 %
Magna as a percentage of GLA
19 %
20 %
Weighted average lease term in years, by
GLA
6.5
5.9
Overall capitalization rate(7)
5.1 %
4.9 %
A more detailed discussion of Granite’s combined financial
results for the three and six month periods ended June 30, 2023 and
2022 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.sedarplus.ca 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.
2022 GLOBAL ENVIRONMENTAL, SOCIAL,
GOVERNANCE + RESILIENCE (ESG+R) REPORT
Today, Granite released its 2022 ESG+R report which highlights
Granite's ESG+R program initiatives and updates from the 2022
calendar year. A copy of the report can be found on Granite's
website at https://granitereit.com/2022-global-esgr-report.
CONFERENCE CALL
Granite will hold a conference call on Thursday, August 10, 2023
at 11:00 a.m. (ET). The toll free number to use for this call is 1
(800) 909-4756. For international callers, please call 1 (416)
981-9017. 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 22027453. The replay will be available until Monday, August
21, 2023.
OTHER INFORMATION
Additional property statistics as at June 30, 2023 have been
posted to our website at
https://granitereit.com/property-statistics-q2-2023. Copies of
financial data and other publicly filed documents are available
through the internet on SEDAR+, which can be accessed at
www.sedarplus.ca 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 143
investment properties representing approximately 62.9 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, RATIOS AND
RECONCILIATIONS
Readers are cautioned that certain terms used in this press
release such as FFO, AFFO, AFFO payout ratio, same property NOI -
cash basis, constant currency same property NOI - cash basis, total
debt and net debt, net leverage ratio, available liquidity, 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”) guidelines on
Funds From Operations & Adjusted Funds From Operations for IFRS
dated January 2022 (“REALPAC Guidelines”). 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
table below). FFO should not be construed as an alternative to net
income or cash flow provided by 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 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 the REALPAC
Guidelines. 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 provided by operating
activities determined in accordance with IFRS.
Three Months Ended
June 30,
Six Months Ended
June 30,
(in millions, except per unit amounts)
2023
2022
2023
2022
Net income (loss) attributable to
stapled unitholders
$
62.5
$
(122.3
)
$
72.2
$
375.4
Add (deduct):
Fair value losses (gains) on investment
properties, net
13.5
251.3
86.5
(239.3
)
Fair value gains on financial instruments,
net
(1.1
)
(3.3
)
(0.6
)
(7.9
)
Loss on sale of investment properties
—
0.3
0.6
0.7
Deferred tax expense (recovery)
5.4
(51.8
)
(6.9
)
14.7
Fair value remeasurement of the Executive
Deferred Stapled Unit Plan
(0.4
)
(1.4
)
4.2
(1.4
)
Fair value remeasurement of the Directors
Deferred Stapled Unit Plan(1)
(0.5
)
(0.7
)
0.9
(0.7
)
Non-controlling interests relating to the
above
(1.8
)
—
0.3
—
FFO
[A]
$
77.6
$
72.1
$
157.2
$
141.5
Add (deduct):
Maintenance or improvement capital
expenditures incurred
(2.2
)
(0.5
)
(2.3
)
(1.6
)
Leasing costs
(1.9
)
(0.9
)
(2.3
)
(2.9
)
Tenant allowances
(0.4
)
(0.1
)
(1.0
)
(0.1
)
Tenant incentive amortization
1.1
1.1
2.2
2.3
Straight-line rent amortization
(4.9
)
(3.5
)
(9.5
)
(5.1
)
Non-controlling interests relating to the
above
0.2
—
0.3
—
AFFO
[B]
$
69.5
$
68.2
$
144.6
$
134.1
Basic FFO per stapled unit
[A]/[C]
$
1.22
$
1.10
$
2.47
$
2.15
Diluted FFO per stapled unit
[A]/[D]
$
1.21
$
1.09
$
2.46
$
2.15
Basic AFFO per stapled unit
[B]/[C]
$
1.09
$
1.04
$
2.27
$
2.04
Diluted AFFO per stapled unit
[B]/[D]
$
1.09
$
1.04
$
2.26
$
2.03
Basic weighted average number of
stapled units
[C]
63.7
65.8
63.7
65.7
Diluted weighted average number of
stapled units
[D]
63.9
65.9
63.9
65.9
(3)
The FFO and AFFO payout ratios
are calculated as monthly distributions, which exclude special
distributions, declared to unitholders divided by FFO and AFFO
(non-IFRS performance measures), respectively, in a period. FFO
payout ratio and AFFO payout ratio may exclude revenue or expenses
incurred during a period that can be a source of variance between
periods. The FFO payout ratio and AFFO payout ratio are
supplemental measures widely used by investors in evaluating the
sustainability of the Trust’s monthly distributions to stapled
unitholders.
Three Months Ended
June 30,
Six Months Ended
June 30,
(in millions, except as noted)
2023
2022
2023
2022
Monthly distributions declared to
unitholders
[A]
$
51.0
$
50.9
$
102.0
$
101.9
FFO
[B]
77.6
72.1
157.2
141.5
AFFO
[C]
69.5
68.2
144.6
134.1
FFO payout ratio
[A]/[B]
66
%
71
%
65
%
72
%
AFFO payout ratio
[A]/[C]
73
%
75
%
71
%
76
%
(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 measure in understanding period-over-period organic
changes in NOI — cash basis from the same stock of properties
owned.
Sq ft(1)
Three Months Ended
June 30,
Sq ft(1)
Six Months Ended
June 30,
(in millions)
2023
2022
$
change
%
change
(in millions)
2023
2022
$
change
%
change
Revenue
$
130.3
$
109.8
20.5
$
259.9
$
218.4
41.5
Less: Property operating costs
21.7
17.0
4.7
43.9
34.4
9.5
NOI
$
108.6
$
92.8
15.8
17.0
%
$
216.0
$
184.0
32.0
17.4
%
Add (deduct):
Straight-line rent amortization
(4.9
)
(3.5
)
(1.4
)
(9.5
)
(5.1
)
(4.4
)
Tenant incentive amortization
1.1
1.1
—
2.2
2.3
(0.1
)
NOI - cash basis
62.9
$
104.8
$
90.4
14.4
15.9
%
62.9
$
208.7
$
181.2
27.5
15.2
%
Less NOI - cash basis for:
Acquisitions
3.0
(3.0
)
(0.8
)
(2.2
)
3.8
(9.1
)
(3.3
)
(5.8
)
Developments
3.5
(2.0
)
—
(2.0
)
3.8
(4.8
)
0.1
(4.9
)
Dispositions and assets held for sale
0.6
(0.1
)
(1.5
)
1.4
0.6
(0.2
)
(2.6
)
2.4
Same property NOI - cash basis
56.4
$
99.7
$
88.1
11.6
13.2
%
55.2
$
194.6
$
175.4
19.2
10.9
%
Constant currency same property NOI -
cash basis(2)
56.4
$
99.7
$
92.6
7.1
7.7
%
55.2
$
194.6
$
183.5
11.1
6.0
%
(1)
The square footage relating to
the NOI — cash basis represents GLA of 62.9 million square feet as
at June 30, 2023. The square footage relating to the same property
NOI — cash basis represents the aforementioned GLA excluding the
impact from the acquisitions, dispositions, assets held for sale
and developments during the relevant period.
(2)
Constant currency same property
NOI - cash basis is calculated by converting the comparative same
property NOI - cash basis at current period average foreign
exchange rates.
(5)
Total debt is calculated as the
sum of all current and non-current debt, the net mark to market
fair value of derivatives and lease obligations as per the
consolidated financial statements. Net debt subtracts cash and cash
equivalents from total debt. Granite believes that it is useful to
include the derivatives and lease obligations for the purposes of
monitoring the Trust’s debt levels.
(6)
The net leverage ratio is
calculated as the net debt (a non-IFRS performance measure defined
above) divided by the fair value of investment properties. The net
leverage ratio is a non-IFRS ratio used in evaluating the Trust’s
degree of financial leverage, borrowing capacity and the relative
strength of its balance sheet.
As at June 30, 2023 and December 31,
2022
2023
2022
Unsecured debt, net
$
3,057.6
$
2,983.6
Derivatives, net
(136.6
)
(138.4
)
Lease obligations
33.4
33.7
Secured debt
—
51.4
Total debt
$
2,954.4
$
2,930.3
Less: cash and cash equivalents
119.2
135.1
Net debt
[A]
$
2,835.2
$
2,795.2
Investment properties
[B]
$
8,833.1
$
8,839.6
Net leverage ratio
[A]/[B]
32
%
32
%
(7)
Overall capitalization rate is
calculated as stabilized net operating income (property revenue
less property expenses) divided by the fair value of the
property.
(8)
Annualized revenue for each
period presented is calculated as the contractual base rent for the
month subsequent to the quarterly reporting period multiplied by 12
months. Annualized revenue excludes revenue from properties
classified as assets held for sale.
(9)
Assets held for sale are excluded
from investment properties and related property metrics.
Accordingly, one such asset that was held for sale at June 30, 2023
and two such assets that were held for sale at December 31, 2022
were excluded from investment properties and related metrics at
June 30, 2023 and December 31, 2022, respectively.
(10)
Available liquidity is a non-IFRS
performance measure defined as the sum of cash and cash equivalents
and the unused portion of the unsecured revolving credit facility.
Granite believes that available liquidity is a useful measure to
investors in determining the Trust’s resources available as at
period-end to meet its ongoing obligations and future
commitments.
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 various matters, including the following,
will be realized in a timely manner, with the expected impact or at
all: 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; Granite’s
ability to implement its ESG+R program and related targets and
goals; the expansion and diversification of Granite’s real estate
portfolio and the reduction in Granite’s exposure to Magna and the
special purpose properties; Granite’s ability to accelerate growth
and to grow its net asset value and FFO and AFFO per unit;
Granite’s ability to find and integrate satisfactory acquisition,
joint venture and development opportunities and to strategically
deploy the proceeds from recently sold properties and financing
initiatives; Granite’s sale from time to time of stapled units
under its ATM Program; the potential for expansion and rental
growth at the property in Ajax, Ontario and the enhancement to the
yield of the property from such potential expansion and rental
growth; the development of a 0.4 million square foot distribution
facility on the 22.0 acre site in Brantford, Ontario, and the
potential yield from the project; obtaining site planning approval
of a 0.7 million square foot distribution facility on the 34.0 acre
site in Brantford, Ontario; the development of a 1.3 million square
foot multi-phased business park on the remaining 101.0 acres of
land in Houston, Texas and the potential yield from the project;
the development of 12.9 acres of land in West Jefferson, Ohio and
the potential yield from that project; the development of a 0.6
million square foot multi-phased business park on the remaining
36.0 acre parcel of land in Brantford, Ontario and the potential
yield from that project; the development of a 0.2 million square
foot modern distribution/logistics facility on the 10.1 acres of
land in Brant County, Ontario and the potential yield of the
project; the timing of payment of associated unpaid construction
costs and holdbacks; 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 impact of the
refinancing of the term loans on Granite’s returns and cash flow;
and the amount of any distributions and distribution increase.
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. 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 risk of
changes to tax or other laws and treaties that may adversely affect
Granite REIT’s mutual fund trust status under the Income Tax Act
(Canada) or the effective tax rate in other jurisdictions in which
Granite operates; the risks related to Russia’s 2022 invasion of
Ukraine that may adversely impact Granite’s operations and
financial performance; 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 AIF for 2022 dated March 8,
2023, filed on SEDAR+ at www.sedarplus.ca and attached as Exhibit 1
to the Trust’s Annual Report on Form 40-F for the year ended
December 31, 2022 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/20230809197982/en/
Teresa Neto Chief Financial Officer (647) 925-7560
www.granitereit.com
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