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 | |||||||
