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, 2023.
This press release features multimedia. View
the full release here:
https://www.businesswire.com/news/home/20230510005758/en/
10144 and 10207 Veterans Drive, Avon IN
(Photo: Business Wire)
FIRST QUARTER 2023
HIGHLIGHTS
Highlights for the three month period ended March 31, 2023,
including events subsequent to the quarter, are set out below:
Financial:
- Granite's net operating income ("NOI") was $107.4 million in
the first quarter of 2023 compared to $91.2 million in the prior
year period, an increase of $16.2 million primarily as a result of
net acquisition activity, the completion of developments and
expansions beginning in the first quarter of 2022, and contractual
rent adjustments;
- Same property NOI - cash basis(4) increased by 5.4% for the
first quarter of 2023, excluding the impact of foreign
exchange;
- Funds from operations ("FFO")(1) was $79.6 million ($1.25 per
unit) in the first quarter of 2023 compared to $69.4 million ($1.05
per unit) in the first quarter of 2022;
- Adjusted funds from operations ("AFFO")(2) was $75.1 million
($1.18 per unit) in the first quarter of 2023 compared to $65.9
million ($1.00 per unit) in the first quarter of 2022;
- During the three month period ended March 31, 2023, the
Canadian dollar weakened against the US dollar and the Euro
relative to the prior year period. The impact of foreign exchange
for FFO for the three month period ended March 31, 2023, relative
to the same period in 2022, was $0.06 per unit, and for AFFO, the
impact of foreign exchange was $0.05 per unit;
- AFFO payout ratio(3) was 68% for the first quarter of 2023
compared to 77% in the first quarter of 2022;
- Granite recognized $73.0 million in net fair value losses on
investment properties in the first quarter of 2023 which were
attributable to the expansion in discount and terminal
capitalization rates across all of Granite’s 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 lease renewals of three special purpose properties in Austria
and Germany, and the stabilization of three properties under
development in Houston, Texas, which were completed and transferred
to income-producing properties during the first quarter of 2023.
The value of investment properties was increased by unrealized
foreign exchange gains of $32.5 million in the first quarter of
2023 primarily resulting from the relative weakening of the
Canadian dollar against the Euro as at March 31, 2023; and
- Granite's net income in the first quarter of 2023 was $9.8
million in comparison to net income of $497.7 million in the prior
year period primarily due to a negative change in the fair value of
investment properties of $563.6 million, partially offset by a
$16.2 million increase in net operating income as noted above and a
$78.5 million increase in income tax recovery.
Developments:
During the first quarter of 2023, including the subsequent
events period, Granite achieved the following milestones with
respect to its development and expansion pipeline:
10144 and 10207 Veterans Drive, Avon IN
- On March 30, 2023, Granite closed on the previously announced
forward purchase of two completed industrial properties totaling
1.0 million square feet in Avon, Indiana for total proceeds of
$106.9 million (US$79.0 million). In conjunction with closing, the
loan made by Granite to the developer with an outstanding balance
of $76.8 million (US$56.4 million) was repaid. The properties are
located in close proximity to significant distribution
infrastructure with access to major highways/thoroughfares
providing regional and national connectivity. The properties were
acquired vacant and leasing activity is underway.
Highway 109 Business Park, Lebanon TN
- On April 6, 2023, Granite reached substantial completion of
three properties totaling 509,250 square feet in Lebanon,
Tennessee. These state-of-the-art facilities have modern features
including 32’ clear heights, LED lighting and other sustainable
design features. The properties have direct access to Highway 109,
and are located 19 miles from Nashville International Airport and
24 miles from downtown Nashville. Leasing of the properties is
underway and subsequent to quarter end, Granite signed a lease for
66,500 square feet with an industrial packaging company commencing
in June 2023 for a 10.2 year term.
905 Belle Lane, Bolingbrook IL
- On April 12, 2023, Granite reached substantial completion of
its 220,620 square foot development in Bolingbrook, Illinois. The
building is 100% leased to La-Z-Boy Manufacturing for an initial
term of 12.4 years. The facility has 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 newly constructed properties in Avon, IN received Two Green
Globes certification upon completion and the Lebanon,TN, and
Bolingbrook, IL properties are also expected to receive green
building certifications to meet the criteria of Eligible Green
Projects (as defined in Granite's Green Bond Framework, which is
available on Granite’s website).
Operations:
- During the first quarter of 2023, Granite achieved average
rental rate spreads of 3% over expiring rents representing
approximately 805,000 square feet of renewals completed in the
quarter, of which approximately 678,000 square feet related to a
contractual renewal at expiring rents of an existing lease in the
United States. The remaining approximately 127,000 square feet of
renewals in Europe achieved an average rental rate spread of
9%.
- On March 15, 2023, Granite completed the disposition of a
property located in Muncie, Indiana, for total proceeds of $24.7
million (US$17.9 million). The property is leased to a subsidiary
of Magna International Inc. As at March 31, 2023, one
income-producing property located in Canada was classified as an
asset held for sale with a fair value of $17.5 million.
GRANITE’S FINANCIAL, OPERATING AND
PROPERTY HIGHLIGHTS
(in millions, except as noted)
For the three months ended March
31,
2023
2022
Revenue
$
129.6
$
108.6
Net operating income ("NOI")
$
107.4
$
91.2
Net income attributable to stapled
unitholders
$
9.8
$
497.7
Funds from operations ("FFO")(1)
$
79.6
$
69.4
Adjusted funds from operations
("AFFO")(2)
$
75.1
$
65.9
Diluted FFO per stapled unit(1)
$
1.25
$
1.05
Diluted AFFO per stapled unit(2)
$
1.18
$
1.00
Monthly distributions paid per stapled
unit
$
0.80
$
0.78
AFFO payout ratio(3)
68
%
77
%
As at March 31, 2023 and December 31,
2022
2023
2022
Fair value of investment properties(9)
$
8,952.1
$
8,839.6
Assets held for sale(9)
$
17.5
$
41.2
Cash and cash equivalents
$
117.2
$
135.1
Total debt(5)
$
2,951.5
$
2,930.3
Net leverage ratio(6)
32
%
32
%
Number of income-producing
properties(9)
133
128
Gross leasable area (“GLA”), square
feet(9)
62.1
59.4
Occupancy, by GLA
97.8
%
99.6
%
Magna as a percentage of annualized
revenue(8)
26
%
26
%
Magna as a percentage of GLA
20
%
20
%
Weighted average lease term in years, by
GLA
6.7
5.9
Overall capitalization rate(7)
5.0
%
4.9
%
A more detailed discussion of Granite’s combined financial
results for the three month periods ended March 31, 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.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 11, 2023 at
11:00 a.m. (ET). The toll free number to use for this call is 1
(800) 920-3395. For international callers, please call 1 (416)
641-6700. 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 22026631. The replay will be available until Monday, May 22,
2023.
ANNUAL MEETING OF
UNITHOLDERS
Granite’s Annual Meeting of Unitholders will take place on June
8, 2023 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, 2023 have been
posted to our website at
https://granitereit.com/property-statistics-q1-2023. 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 142
investment properties representing approximately 62.8 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
March 31,
(in millions, except per unit amounts)
2023
2022
Net income attributable to stapled
unitholders
$
9.8
$
497.7
Add (deduct):
Fair value losses (gains) on investment
properties, net
73.0
(490.6
)
Fair value losses (gains) on financial
instruments, net
0.5
(4.6
)
Loss on sale of investment properties
0.6
0.4
Deferred tax (recovery) expense
(12.3
)
66.5
Fair value remeasurement of the Executive
Deferred Stapled Unit Plan
4.6
—
Fair value remeasurement of the Directors
Deferred Stapled Unit Plan(1)
1.3
—
Non-controlling interests relating to the
above
2.1
—
FFO
[A]
$
79.6
$
69.4
Add (deduct):
Maintenance or improvement capital
expenditures incurred
(0.1
)
(1.1
)
Leasing costs
(0.4
)
(2.0
)
Tenant allowances
(0.6
)
—
Tenant incentive amortization
1.1
1.2
Straight-line rent amortization
(4.6
)
(1.6
)
Non-controlling interests relating to the
above
0.1
—
AFFO
[B]
$
75.1
$
65.9
Basic FFO per stapled unit
[A]/[C]
$
1.25
$
1.06
Diluted FFO per stapled unit
[A]/[D]
$
1.25
$
1.05
Basic and Diluted AFFO per stapled
unit
[B]/[C] and [B]/[D]
$
1.18
$
1.00
Basic weighted average number of
stapled units
[C]
63.7
65.7
Diluted weighted average number of
stapled units
[D]
63.9
65.8
(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
March 31,
(in millions, except as noted)
2023
2022
Monthly distributions declared to
unitholders
[A]
$
51.0
$
50.9
FFO
[B]
79.6
69.4
AFFO
[C]
75.1
65.9
FFO payout ratio
[A]/[B]
64
%
73
%
AFFO payout ratio
[A]/[C]
68
%
77
%
(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)
2023
2022
$
change
%
change
Revenue
$
129.6
$
108.6
21.0
Less: Property operating costs
22.2
17.4
4.8
NOI
$
107.4
$
91.2
16.2
17.8
%
Add (deduct):
Straight-line rent amortization
(4.6
)
(1.6
)
(3.0
)
Tenant incentive amortization
1.1
1.2
(0.1
)
NOI - cash basis
62.1
$
103.9
$
90.8
13.1
14.4
%
Less NOI - cash basis for:
Acquisitions
2.8
(4.7
)
(0.8
)
(3.9
)
Developments
4.1
(1.8
)
—
(1.8
)
Dispositions and assets held for sale
4.7
(0.2
)
(1.5
)
1.3
Same property NOI - cash basis
55.2
$
97.2
$
88.5
8.7
9.8
%
Constant currency same property NOI -
cash basis(2)
55.2
$
97.2
$
92.2
5.0
5.4
%
(1)
The square footage relating to
the NOI — cash basis represents GLA of 62.1 million square feet as
at March 31, 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 March 31, 2023 and December 31,
2022
2023
2022
Unsecured debt, net
$
2,983.8
$
2,983.6
Derivatives, net
(121.8
)
(138.4
)
Lease obligations
33.7
33.7
Secured debt
55.8
51.4
Total debt
$
2,951.5
$
2,930.3
Less: cash and cash equivalents
117.2
135.1
Net debt
[A]
$
2,834.3
$
2,795.2
Investment properties
[B]
$
8,952.1
$
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 March 31,
2023 and two such assets that were held for sale at December 31,
2022 were excluded from investment properties and related metrics
at March 31, 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 three modern distribution facilities in
Lebanon, Tennessee, and the yield from the development; 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; the development of a 0.2 million square foot
built-to-suit modern distribution facility at a 13.0 acre site in
Bolingbrook, Illinois, and the potential yield from the project;
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 1.3 million square foot multi-phased
business park on the remaining 70.0 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.sedar.com 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/20230510005758/en/
Teresa Neto, Chief Financial Officer, (647) 925-7560
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