Granite Announces 2015 Second Quarter Results

TORONTO, Aug. 12, 2015 /CNW/ - Granite Real Estate Investment Trust and Granite REIT Inc. (TSX: GRT.UN; NYSE: GRP.U) ("Granite" or the "Trust") today announced their combined results for the three and six month periods ended June 30, 2015.

HIGHLIGHTS

Highlights for the three month period ended June 30, 2015, including events subsequent to the quarter, are set out below:

  • Funds from operations ("FFO")(1) attributed to continuing operations increased 8.6% in comparison to the same quarter last year. The increase was driven primarily by increased revenue and reduced interest costs;
  • Six leases representing approximately 1.3 million square feet with ALP(2) of approximately $7.7 million were renewed or extended;
  • A property in Germany was sold for total gross proceeds of approximately $3.5 million; and
  • On June 12, 2015, the Board of Trustees (the "Board") announced that it is conducting a comprehensive review of strategic alternatives available to best enhance the long-term interests of Granite and all of its stakeholders. The strategic review is continuing and there can be no assurance that the Board's process will result in any specific action. Granite does not intend to disclose further developments unless and until the Board approves a specific action or otherwise concludes the review of strategic alternatives.

Granite's results for the three and six month periods ended June 30, 2015 and 2014 are summarized below (all figures are in Canadian dollars):

(in thousands, except per unit figures)

Three Months Ended
 June 30,


Six Months Ended
 June 30,


2015

2014


2015

2014







Revenues

$53,470

$52,160


$106,506

$105,093







Net income from continuing operations

48,241

26,416


103,056

38,591

Net income from discontinued operations

4,369


6,757

Net income

$48,241

$30,785


$103,056

$45,348







Funds from operations ("FFO")(1)

$40,304

$39,870


$79,099

$78,874

Basic and diluted FFO per stapled unit(1)

$0.86

$0.85


$1.68

$1.68







Fair value of investment properties(3)




$2,408,525

$2,246,600

 

Readers are cautioned that certain terms used in this press release such as FFO 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 revenue, as appropriate, 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 defined as net income attributable to stapled unitholders prior to fair value gains (losses), gains (losses) on sale of investment properties, acquisition transaction costs, deferred income taxes and certain other non-cash items, adjusted for 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") and is a widely used measure by analysts and investors in evaluating the performance of real estate entities. Granite considers FFO to be a meaningful supplemental measure that can be used to determine the Trust's ability to service debt, finance capital expenditures and provide distributions to stapled unitholders.  FFO is reconciled to net income, which is the most directly comparable IFRS measure (see "Reconciliation of Funds from Operations to Net Income Attributable to Stapled Unitholders").  FFO does not represent or approximate cash generated from operating activities determined in accordance with IFRS and is not reconciled to cash flow from operating activities as the calculation of FFO does not consider changes in working capital items or adjust for certain other non-cash items that are included in the determination of cash flow from operating activities in accordance with IFRS.

(2)

ALP represents Granite's total annual rent assuming that contractual lease payments in place at the last day of the reporting period were in place for an entire year or less than a year if non-renewal or termination notices have been provided or the disposal of a property is certain. Accordingly, any revenue changes from future contractual rent adjustments, renewal and re-leasing activities or expansion and improvement projects to be completed are not reflected in ALP as at any given period end. In addition, rents denominated in foreign currencies are converted to Canadian dollars based on exchange rates in effect at the last day of the reporting period. Granite considers annualized lease payments to be a useful indicator of rental revenue (excluding tenant recoveries and straight line revenue adjustments) anticipated in the upcoming 12 month period. ALP is also a measure that is used by analysts in evaluating the outlook for real estate entities as it provides a forward-looking estimate of revenue using the present trends and foreign exchange rates in effect at the last day of the reporting period. ALP is not reconciled to any IFRS measure as it is an indicator of anticipated revenue and therefore not comparable to any measure in the combined financial statements. 

(3)

At period end.

GRANITE'S COMBINED FINANCIAL RESULTS

On June 26, 2014, Granite disposed of its portfolio of Mexican properties. As the Mexican properties represented a significant geographical area of operations, the Trust has presented the income and expenses associated with the Mexican portfolio as discontinued operations on a retroactive basis to prior reporting periods. Discontinued operations are reported separately from income and expenses from continuing operations in the combined financial statements. Granite's results of operations for the three and six month periods ended June 30, 2015 were not impacted by discontinued operations.

Three month period ended June 30, 2015

For the three month period ended June 30, 2015, rental revenue from continuing operations increased by $1.3 million to $53.5 million from $52.2 million in the second quarter of 2014.  The increase in rental revenue was primarily due to the acquisition of two properties in the United States during the fourth quarter of 2014, contractual rent adjustments and close-out fees received with respect to expired leases for properties in the United States and Austria, partially offset by vacancies and disposals of income-producing properties and the effect of unfavourable foreign exchange rates. For the second quarter of 2014, there was $3.4 million of revenue from discontinued operations.

Granite's net income from continuing operations in the second quarter of 2015 was $48.2 million compared to $26.4 million for the second quarter of 2014. Net income from continuing operations increased primarily due to (i) net fair value gains on investment properties of $21.5 million compared to net fair value losses of $5.6 million in the prior year period and (ii) a $2.4 million decrease in net interest expense,  partially offset by a $7.2 million increase in deferred income tax expense. 

FFO for the second quarter of 2015 was $40.3 million and derived solely from continuing operations. FFO for the second quarter of 2014 was $39.9 million and comprised $37.1 million from continuing operations and $2.8 million from discontinued operations. The $3.2 million increase in FFO attributed to continuing operations was primarily due to (i) the $1.3 million increase in rental revenue, (ii) a $0.5 million decrease in property operating costs, (iii) a $0.4 million increase in foreign exchange gains and (iv) a $2.4 million reduction in net interest expense, partially offset by (i) a $0.8 million increase in general and administrative expenses and (ii) a reduction of the current income tax recovery of $0.6 million.

Six month period ended June 30, 2015

For the six month period ended June 30, 2015, rental revenue increased by $1.4 million to $106.5 million in the six month period ended June 30, 2015 from $105.1 million in the prior year period.  The increase in rental revenue was primarily due to the reasons noted above.  For the six month period ended June 30, 2014, there was $7.1 million in revenue from discontinued operations.

Granite's net income from continuing operations in the six month period ended June 30, 2015 was $103.1 million compared to $38.6 million reported for the six month period ended June 30, 2014. Net income from continuing operations increased primarily due to (i) net fair value gains on investment properties of $46.8 million compared to net fair value losses of $29.1 million in the prior year period and (ii) lower  interest expense of $4.8 million, partially offset by a $17.6 million increase in deferred income tax expense. 

FFO for the six month period ended June 30, 2015 was $79.1 million and derived solely from continuing operations. FFO for the six month period ended June 30, 2014 was $78.9 million and comprises $73.0 million from continuing operations and $5.9 million from discontinued operations. The increase in FFO attributed to continuing operations of $6.1 million was primarily due to (i) the $1.4 million increase in rental revenue, (ii) a $0.6 million decrease in property operating costs and (iii) a $4.8 million reduction in net interest expense, partially offset by a $0.5 million increase in current income tax expense.

In the three and six month periods ended June 30, 2014, Granite completed the disposition of its portfolio of Mexican properties to a subsidiary of Magna for gross proceeds of $113.7 million (U.S. $105.0 million) and incurred a $5.1 million loss on disposal due to certain closing adjustments and associated selling costs. As a result of the disposition of the Mexican operations, net cumulative foreign currency translation gains of $5.7 million were reclassified from equity and recorded in net income.

A more detailed discussion of Granite's combined financial results for the three and six month periods ended June 30, 2015 and 2014 is contained in Granite's Management's Discussion and Analysis of Results of Operations and Financial Position and the unaudited condensed combined financial statements for those periods and the notes thereto, which are available through the internet on 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.

RECONCILIATION OF FUNDS FROM OPERATIONS TO NET INCOME ATTRIBUTABLE TO STAPLED UNITHOLDERS

(in thousands, except per unit information)

Three Months Ended
 June 30,


Six Months Ended
 June 30,


2015

2014


2015

2014







Net income attributable to stapled unitholders

$46,097

$30,668


$100,459

$45,123

Add (deduct):







Fair value losses (gains) on investment properties, net

(21,511)

5,570


(46,754)

29,123


Fair value losses (gains) on financial instruments

851

(377)


240

(339)


Loss on sale of investment properties

48


233

182


Current income tax expense associated with the sale of investment properties


350

1,099


Deferred income taxes

12,710

5,541


22,063

4,490


Non-controlling interests relating to the above

2,109

34


2,508

44


FFO adjustments related to discontinued operations

(1,566)


(848)

FFO

$40,304

$39,870


$79,099

$78,874



















Basic and diluted FFO per stapled unit

$0.86

$0.85


$1.68

$1.68







Basic number of stapled units outstanding

47,017

47,014


47,017

46,988

Diluted number of stapled units outstanding

47,087

47,070


47,105

47,029

CONFERENCE CALL

Granite will hold a conference call on Thursday, August 13, 2015 at 8:30 a.m. Eastern time.  The number to use for this call is 1-800-616-4021. Overseas callers should use +1-416-359-3126.  Please call in at least 10 minutes prior to start time. The conference call will be chaired by Michael Forsayeth, Chief Financial 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 21772139) and will be available until Monday, August 24, 2015.

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 30.0 million square feet in over 100 rental income properties. Our tenant base currently includes Magna International Inc. and its operating subsidiaries as our largest tenants, together with tenants from other industries.

For further information, please contact Michael Forsayeth, Chief Financial Officer, at 647-925-7600.

OTHER INFORMATION

Additional property statistics as at June 30, 2015 have been posted to our website at 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.

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, economic performance, expectations, or foresight or the assumptions underlying any of the foregoing.  Words such as "may", "would", "could", "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 be no assurance that the intended developments in Granite's relationships with its tenants, the expansion and diversification of Granite's real estate portfolio, the expected cost of development and re-development projects and the expected sources of funding and increases in leverage 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 achieve desired developments in its relationships with its tenants, expand and diversify its real estate portfolio and increase its leverage; and the risks set forth in the "Risk Factors" section in Granite's Annual Information Form for 2014 dated March 4, 2015, 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, 2014, 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.

SOURCE Granite Real Estate Investment Trust

For further information: Michael Forsayeth, Chief Financial Officer, at 647-925-7600.

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