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, 2022 and also announced that it has completed the acquisition
of 2 income-producing properties and 1 property under development
the United States comprising approximately 1.4 million square feet
at a combined purchase price of approximately $193.6 million.
This press release features multimedia. View
the full release here:
https://www.businesswire.com/news/home/20220511006036/en/
2128 Gateway Point, Clayton, Indiana
(Photo: Business Wire)
FIRST QUARTER 2022 HIGHLIGHTS
Highlights for the three month period ended March 31, 2022,
including events subsequent to the quarter, are set out below:
Financial:
- Granite's net operating income ("NOI") was $91.2 million in the
first quarter of 2022 compared to $81.5 million in the prior year
period, an increase of $9.7 million primarily as a result of net
acquisition activity beginning in the first quarter of 2021;
- Same property NOI - cash basis(4) increased by 4.6% for the
three month period ended March 31, 2022, excluding the impact of
foreign exchange;
- Funds from operations ("FFO")(1) was $69.4 million ($1.05 per
unit) in the first quarter of 2022 compared to $57.1 million ($0.93
per unit) in the first quarter of 2021. Included in FFO in the
first quarter of 2021 were $4.0 million of early redemption
premiums related to the 2021 Debentures and $0.5 million of
accelerated amortization of original financing costs related to the
refinancing of Granite's credit facility. Excluding these
refinancing costs, FFO per unit for the first quarter of 2021 would
have been $1.00 per unit. The strengthening Canadian dollar
relative to the US dollar and Euro had a negative impact on FFO of
$0.02 per unit in the first quarter of 2022 relative to 2021;
- Adjusted funds from operations ("AFFO")(2) was $65.9 million
($1.00 per unit) in the first quarter of 2022 compared to $54.7
million ($0.89 per unit) in the first quarter of 2021. Excluding
the above-mentioned financing costs, AFFO per unit for the first
quarter of 2021 would have been $0.96 per unit. The strengthening
Canadian dollar relative to the US dollar and Euro had a negative
impact on AFFO of $0.02 per unit in the first quarter of 2022
relative to 2021;
- AFFO payout ratio(3) was 77% for the first quarter of 2022
compared to 78% in the first quarter of 2021;
- Granite recognized $490.6 million in net fair value gains on
investment properties in the first quarter of 2022 which were
attributable to various factors including fair market rent
increases as well as compression in discount and terminal
capitalization rates for properties located in the GTA, the United
States and Europe. The value of investment properties was partially
offset by unrealized foreign exchange losses of $146.1 million
resulting from the relative strengthening of the Canadian dollar
against the US dollar and Euro as at March 31, 2022; and
- Granite's net income attributable to stapled unitholders
increased to $497.7 million in the first quarter of 2022 from
$230.1 million in the prior year period primarily due to a $281.1
million increase in net fair value gains on investment properties
and a $9.7 million increase in net operating income as noted above,
partially offset by a $30.6 million increase in deferred tax
expense.
Investments:
During the first quarter of 2022, Granite closed the following
acquisition previously referenced in its March 9, 2022 press
release:
Wiesbaden, Korbach and Erfurt, Germany
- On February 3, 2022, Granite acquired three modern distribution
facilities in Germany, together comprising 0.8 million square feet,
for $140.0 million (€96.6 million). The properties are 100% leased
to high credit-quality global tenants for a weighted average
remaining lease term of 7.3 years and were acquired at an in-going
yield of 3.6%.
In addition to the above, during the period between April 1,
2022 and May 11, 2022, Granite completed the following new
acquisitions:
2128 and 10566 Gateway Point, Clayton, Indiana
- On April 14, 2022, Granite acquired two newly constructed
modern distribution facilities, comprising of approximately 1.4
million square feet in Indiana, United States for $179.1 million
(US$141.8 million). The properties are 100% leased to two
investment grade tenants with a weighted average lease term of 10
years and were acquired at an in-going yield of 4.2%. One of the
properties offers excess density which can support future expansion
capabilities. Fronting on the I-70, the facilities are well located
within the submarket with connectivity to five major interstate
highways and are 15 miles south of the FedEx World Hub.
905 Belle Lane, Bolingbrook, Illinois
- On May 5, 2022, Granite acquired a property under development
for $14.5 million (US$11.3 million) comprising of a 0.2 million
square foot built-to-suit modern distribution facility to be
constructed on 13.6 acres in Bolingbrook, Illinois. Construction
has commenced and the property is expected to be completed in the
first quarter of 2023 at a total fixed cost, including land, of
$50.1 million (US$39.0 million). A globally-recognized furniture
provider will tenant the building upon completion for an initial
term of 12.3 years. The facility will have modern features
including cross-dock configuration, 32’ clear heights, expandable
parking and trailer stalls, upgraded dock equipment and
sustainability features. The property is well located with
visibility from the I-55 which offers connectivity between Chicago
and the southern United States. The property is expected to achieve
a stabilized development yield of 3.9%.
Operations:
- On February 18, 2022, Granite completed the disposition an
income producing property and a piece of land held for development
located in Mirków, Poland for total proceeds of $34.5 million
(€23.9 million); and
- During the quarter, Granite executed a 10.3 year lease with a
leading North American glassware provider for its 0.6 million
square foot, 36’ clear height, state-of-the-art
distribution/e-commerce facility under development in Fort Worth,
Texas. The property is expected to be completed in the second
quarter of 2022.
Financing:
- On February 3, 2022, Granite terminated $350.0 million of a
total $500.0 million principal of the 2028 Cross Currency Interest
Rate Swap, which exchanged Canadian dollar denominated principal
and interest payments of Granite's 2.194% Series 6 senior unsecured
debentures due August 30, 2028 (the “2028 Debentures”), for US
dollar denominated payments at a fixed interest rate of 2.096%.
Simultaneously, Granite entered into a new $350.0 million
cross-currency interest rate swap maturing August 30, 2028 to
exchange the Canadian dollar denominated principal and interest
payments of the 2028 Debentures for Euro denominated payments at a
fixed interest rate of 0.536%. The restructuring of a portion of
Granite’s hedge relating to the 2028 Debentures will result in
annual interest expense savings of approximately $5.5 million or
approximately $0.083 on a per unit basis. Upon termination, Granite
paid $6.6 million to settle the mark-to-market liability relating
to the $350.0 million principal portion of the 2028 Cross Currency
Interest Rate Swap.
GRANITE’S FINANCIAL, OPERATING AND PROPERTY
HIGHLIGHTS
(in millions, except as noted) For the
three months ended March 31,
2022
2021
Revenue(4)
$
108.6
$
95.9
Net operating income ("NOI")
$
91.2
$
81.5
Net income attributable to stapled
unitholders
$
497.7
$
230.1
Funds from operations ("FFO")(1)
$
69.4
$
57.1
Adjusted funds from operations
("AFFO")(2)
$
65.9
$
54.7
Diluted FFO per stapled unit(1)
$
1.05
$
0.93
Diluted AFFO per stapled unit (2)
$
1.00
$
0.89
Monthly distributions paid per stapled
unit
$
0.78
$
0.75
AFFO payout ratio(3)
77
%
78
%
As at March 31 and December 31
2022
2021
Fair value of investment properties(9)
$
8,526.8
$
7,971.2
Assets held for sale(9)
$
32.9
$
64.6
Cash and cash equivalents
$
228.5
$
402.5
Total debt(5)
$
2,340.4
$
2,414.0
Net leverage ratio(6)
25
%
25
%
Number of income-producing
properties(9)
122
119
Gross leasable area (“GLA”), square
feet(9)
55.9
55.1
Occupancy, by GLA
99.7
%
99.7
%
Magna as a percentage of annualized
revenue(8)
29
%
29
%
Magna as a percentage of GLA
22
%
22
%
Weighted average lease term in years, by
GLA
5.7
5.8
Overall capitalization rate(7)
4.3
%
4.5
%
A more detailed discussion of Granite’s combined financial
results for the three month periods ended March 31, 2022 and 2021
is contained in Granite’s Management’s Discussion and Analysis of
Results of Operations and Financial Position ("MD&A") and the
unaudited condensed combined financial statements for those periods
and the notes thereto, which are available through the internet on
the Canadian Securities Administrators’ System for Electronic
Document Analysis and Retrieval (“SEDAR”) and can be accessed at
www.sedar.com and on the United States Securities and Exchange
Commission’s (the “SEC”) Electronic Data Gathering, Analysis and
Retrieval System (“EDGAR”), which can be accessed at
www.sec.gov.
CONFERENCE CALL
Granite will hold a conference call on Thursday, May 12, 2022 at
11:00 a.m. (ET). The toll free number to use for this call is 1
(800) 897-4057. For international callers, please call 1 (416)
981-9014. 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 22017097. The replay will be available until Monday, May 23,
2022.
ANNUAL MEETING AND SPECIAL MEETINGS OF UNITHOLDERS
Granite’s Annual Meeting and Special Meetings of Unitholders
(the "Meetings") will take place on June 9, 2022 at 10:00 a.m. (ET)
in person at Vantage Venues located at 150 King Street West, 27th
Floor, Main Dining Room, Toronto, Ontario. Refer to the “Voting
Information and General Proxy Matters” within Granite’s Management
Information Circular/Proxy Statement for detailed instructions on
how to vote at the Meetings. A live webcast of the Meetings will be
available through Granite’s website at
https://granitereit.com/investors/unitholder-shareholder-meetings/
in which Unitholders may listen to the live webcast and will have
the ability to ask questions, but will not have the ability to vote
virtually. The webcast of the Meetings will be archived on our
website following the Meetings at
https://granitereit.com/investors/unitholder-shareholder-meetings/.
OTHER INFORMATION
Additional property statistics as at March 31, 2022 have been
posted to our website at
https://granitereit.com/property-statistics-q1-2022. 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 137
investment properties representing approximately 57.3 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, NON-IFRS 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, 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
below). FFO should not be construed as an alternative to net income
or cash flow generated from operating activities determined in
accordance with IFRS.
(2) AFFO is a non-IFRS performance measure that is widely used
by the real estate industry in evaluating the recurring economic
earnings performance of real estate entities after considering
certain costs associated with sustaining such earnings. Granite
calculates AFFO as net income attributable to stapled unitholders
including all adjustments used to calculate FFO and further adjusts
for actual maintenance capital expenditures that are required to
sustain Granite’s productive capacity, leasing costs such as
leasing commissions and tenant allowances 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 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 generated from operating
activities determined in accordance with IFRS.
Three Months Ended
March 31,
(in millions, except per unit amounts)
2022
2021
Net income attributable to stapled
unitholders
$
497.7
$
230.1
Add (deduct):
Fair value gains on investment properties,
net
(490.6
)
(209.5
)
Fair value losses (gains) on financial
instruments
(4.6
)
0.3
Loss on sale of investment properties
0.4
0.2
Deferred income tax expense
66.5
35.9
Non-controlling interests relating to the
above
—
0.1
FFO
[A]
$
69.4
$
57.1
Add (deduct):
Maintenance or improvement capital
expenditures incurred
(1.1
)
(0.5
)
Leasing costs
(2.0
)
—
Tenant allowances
—
(0.1
)
Tenant allowance amortization
1.2
1.3
Straight-line rent amortization
(1.6
)
(3.1
)
Non-controlling interests relating to the
above
—
—
AFFO
[B]
$
65.9
$
54.7
Basic FFO per stapled unit
[A]/[C]
$
1.06
$
0.93
Diluted FFO per stapled unit
[A]/[D]
$
1.05
$
0.93
Basic and Diluted AFFO per stapled
unit
[B]/[C] and [B]/[D]
$
1.00
$
0.89
Basic weighted average number of
stapled units
[C]
65.7
61.7
Diluted weighted average number of
stapled units
[D]
65.8
61.7
(3) AFFO payout ratio is calculated as monthly distributions,
which exclude special distributions, 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 non-IFRS ratio
widely used by analysts and investors in evaluating the
sustainability of the Trust’s monthly distributions to stapled
unitholders.
Three Months Ended
March 31,
2022
2021
(in millions, except as noted)
Monthly distributions declared to
unitholders
[A]
$
50.9
$
46.3
FFO
69.4
57.1
Add (deduct):
Early redemption premium related to 2021
Debentures
—
4.0
Accelerated amortization of credit
facility deferred finance fees
—
0.5
FFO adjusted for the above
[B]
$
69.4
$
61.6
AFFO
65.9
54.7
Add (deduct):
Early redemption premium related to 2021
Debentures
—
4.0
Accelerated amortization of credit
facility deferred finance fees
—
0.5
AFFO adjusted for the above
[C]
$
65.9
$
59.2
AFFO payout ratio
[A]/[C]
77
%
78
%
(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
March 31,
(in millions)
2022
2021
$ change
%
change
Revenue
$
108.6
$
95.9
12.7
Less: Property operating costs
17.4
14.4
3.0
NOI
$
91.2
$
81.5
9.7
11.9
%
Add (deduct):
Straight-line rent amortization
(1.6
)
(3.1
)
1.5
Tenant incentive amortization
1.2
1.4
(0.2
)
NOI - cash basis
55.9
$
90.8
$
79.8
11.0
13.8
%
Less NOI - cash basis for:
Acquisitions
6.9
(10.2
)
—
(10.2
)
Dispositions and assets held for sale
1.0
(1.0
)
(1.7
)
0.7
Same property NOI - cash basis
48.2
$
79.6
$
78.1
1.5
1.9
%
Constant currency same property NOI -
cash basis(2)
48.2
$
79.6
$
76.1
3.5
4.6
%
- The square footage relating to the NOI — cash basis represents
GLA of 55.9 million square feet as at March 31, 2022. 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.
- Constant currency same property NOI - cash basis is calculated
by converting the comparative same property NOI - cash basis at
current 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
cross-currency interest rate swaps 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 cross-currency interest rate swaps 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 March 31 and December 31
2022
2021
Unsecured debt, net
$
2,422.3
$
2,425.1
Cross currency interest rate swaps,
net
(126.1
)
(44.1
)
Lease obligations
31.5
32.2
Secured debt
12.7
0.8
Total debt
$
2,340.4
$
2,414.0
Less: cash and cash equivalents
228.5
402.5
Net debt
[A]
$
2,111.9
$
2,011.5
Investment properties
[B]
$
8,526.8
$
7,971.2
Net leverage ratio
[A]/[B]
25
%
25
%
(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 March 31, 2022 and three such assets that were
held for sale at December 31, 2021 were excluded from investment
properties and related metrics at March 31, 2022 and December 31,
2021, 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 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: 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; Granite’s intended use of the net
proceeds of its equity and debenture offerings to fund potential
acquisitions and for the other purposes described previously; the
potential for expansion and rental growth at the properties in
Mississauga and Ajax, Ontario and Whitestown, Indiana and the
enhancement to the yields of such properties from such potential
expansion and rental growth; the construction on and development
yield of the site in Houston, Texas; the expected development and
construction of an e-commerce and logistics warehouse on land in
Fort Worth, Texas; the construction of the distribution/light
industrial facility on the 13-acre site in Altbach, Germany; the
construction of a modern distribution facility on the 50.8 acre
site in Murfreesboro, Tennessee; the development of three modern
distribution facilities in Lebanon, Tennessee, and the yield from
the development; the development of a multi-phased business park on
the 92.2 acre site in Brantford, Ontario, and the potential yield
from 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 2021 dated March 9, 2022, 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, 2021 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/20220511006036/en/
Teresa Neto Chief Financial Officer (647) 925-7560.
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