Exhibit 4.5
Condensed Combined Financial Statements
of Granite Real Estate Investment Trust
and Granite REIT Inc.
For the three and six months ended June 30, 2021 and 2020
Condensed Combined Balance Sheets
(Canadian dollars in thousands)
(Unaudited)
As at | Note | June 30, 2021 | December 31, 2020 | |||||||||
ASSETS | ||||||||||||
Non-current assets: | ||||||||||||
Investment properties | 4 | $ | 6,396,560 | $ | 5,855,583 | |||||||
Construction funds in escrow | 6 | 8,144 | 8,402 | |||||||||
Deferred tax assets | 3,242 | 4,730 | ||||||||||
Fixed assets, net | 3,003 | 3,290 | ||||||||||
Cross currency interest rate swap | 7(b) | 48,816 | 28,676 | |||||||||
Other assets | 6 | 3,081 | 948 | |||||||||
6,462,846 | 5,901,629 | |||||||||||
Current assets: | ||||||||||||
Accounts receivable | 6,835 | 6,746 | ||||||||||
Income taxes receivable | 1,401 | 915 | ||||||||||
Prepaid expenses and other | 12,584 | 6,902 | ||||||||||
Cash and cash equivalents | 14(d) | 678,142 | 831,280 | |||||||||
Total assets | $ | 7,161,808 | $ | 6,747,472 | ||||||||
LIABILITIES AND EQUITY | ||||||||||||
Non-current liabilities: | ||||||||||||
Unsecured debt, net | 7(a) | $ | 1,922,398 | $ | 1,928,252 | |||||||
Cross currency interest rate swaps | 7(b) | 29,471 | 97,311 | |||||||||
Long-term portion of lease obligations | 8 | 32,030 | 32,944 | |||||||||
Deferred tax liabilities | 460,538 | 392,841 | ||||||||||
2,444,437 | 2,451,348 | |||||||||||
Current liabilities: | ||||||||||||
Unsecured debt, net | 7(a) | — | 249,870 | |||||||||
Cross currency interest rate swaps | 7(b) | — | 16,953 | |||||||||
Deferred revenue | 9 | 11,701 | 11,276 | |||||||||
Accounts payable and accrued liabilities | 9 | 56,249 | 61,197 | |||||||||
Distributions payable | 10 | 16,421 | 15,422 | |||||||||
Short-term portion of lease obligations | 8 | 726 | 829 | |||||||||
Income taxes payable | 22,706 | 18,373 | ||||||||||
Total liabilities | 2,552,240 | 2,825,268 | ||||||||||
Equity: | ||||||||||||
Stapled unitholders’ equity | 11 | 4,607,400 | 3,920,069 | |||||||||
Non-controlling interests | 2,168 | 2,135 | ||||||||||
Total equity | 4,609,568 | 3,922,204 | ||||||||||
Total liabilities and equity | $ | 7,161,808 | $ | 6,747,472 |
Commitments and contingencies (note 17)
See accompanying notes
56 Granite REIT 2021 Second Quarter Report
Condensed Combined Statements of Net Income
(Canadian dollars in thousands)
(Unaudited)
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||
Note | 2021 | 2020 | 2021 | 2020 | ||||||||||||||||
Rental revenue | 12(a) | $ | 93,963 | $ | 81,008 | $ | 189,905 | $ | 159,058 | |||||||||||
Property operating costs | 12(b) | 13,634 | 9,843 | 28,030 | 20,011 | |||||||||||||||
Net operating income | 80,329 | 71,165 | 161,875 | 139,047 | ||||||||||||||||
General and administrative expenses | 12(c) | 8,333 | 8,986 | 17,154 | 14,713 | |||||||||||||||
Depreciation and amortization | 360 | 271 | 691 | 508 | ||||||||||||||||
Interest income | (550 | ) | (407 | ) | (1,366 | ) | (1,275 | ) | ||||||||||||
Interest expense and other financing costs | 12(d) | 9,603 | 7,763 | 24,397 | 14,408 | |||||||||||||||
Foreign exchange (gains) losses, net | (1,077 | ) | 18 | (1,795 | ) | (2,742 | ) | |||||||||||||
Fair value gains on investment properties, net | 4 | (308,025 | ) | (34,548 | ) | (517,541 | ) | (70,541 | ) | |||||||||||
Fair value losses on financial instruments, net | 12(e) | 149 | 3,891 | 488 | 5,785 | |||||||||||||||
Loss on sale of investment properties | 5 | 421 | — | 576 | — | |||||||||||||||
Income before income taxes | 371,115 | 85,191 | 639,271 | 178,191 | ||||||||||||||||
Income tax expense | 13 | 54,141 | 9,549 | 92,021 | 21,137 | |||||||||||||||
Net income | $ | 316,974 | $ | 75,642 | $ | 547,250 | $ | 157,054 | ||||||||||||
Net income attributable to: | ||||||||||||||||||||
Stapled unitholders | $ | 316,911 | $ | 75,657 | $ | 547,044 | $ | 156,953 | ||||||||||||
Non-controlling interests | 63 | (15 | ) | 206 | 101 | |||||||||||||||
$ | 316,974 | $ | 75,642 | $ | 547,250 | $ | 157,054 |
See accompanying notes
Granite REIT 2021 Second Quarter Report 57
Condensed Combined Statements of Comprehensive Income (Loss)
(Canadian dollars in thousands)
(Unaudited)
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||
Note | 2021 | 2020 | 2021 | 2020 | ||||||||||||||||
Net income | $ | 316,974 | $ | 75,642 | $ | 547,250 | $ | 157,054 | ||||||||||||
Other comprehensive (loss) income: | ||||||||||||||||||||
Foreign currency translation adjustment(1) | (34,117 | ) | (95,491 | ) | (164,079 | ) | 164,148 | |||||||||||||
Unrealized gain (loss) on net investment hedges, includes income taxes of nil(1) | 7(b) | 26,452 | 12,433 | 93,419 | (44,346 | ) | ||||||||||||||
Total other comprehensive (loss) income | (7,665 | ) | (83,058 | ) | (70,660 | ) | 119,802 | |||||||||||||
Comprehensive income (loss) | $ | 309,309 | $ | (7,416 | ) | $ | 476,590 | $ | 276,856 | |||||||||||
(1) Items that may be reclassified subsequently to net income if a foreign subsidiary is disposed of or hedges are terminated or no longer assessed as effective.
|
| |||||||||||||||||||
Comprehensive income (loss) attributable to: |
| |||||||||||||||||||
Stapled unitholders | $ | 309,220 | $ | (7,399 | ) | $ | 476,427 | $ | 276,735 | |||||||||||
Non-controlling interests | 89 | (17 | ) | 163 | 121 | |||||||||||||||
$ | 309,309 | $ | (7,416 | ) | $ | 476,590 | $ | 276,856 |
See accompanying notes
58 Granite REIT 2021 Second Quarter Report
Condensed Combined Statements of Unitholders’ Equity
(Canadian dollars in thousands)
(Unaudited)
Six Months Ended June 30, 2021 | ||||||||||||||||||||||||||||||||
Number of units (000s) | Stapled units | Contributed surplus | Retained earnings | Accumulated other comprehensive income | Stapled unitholders’ equity | Non- controlling interests | Equity | |||||||||||||||||||||||||
As at January 1, 2021 | 61,688 | $ | 3,139,194 | $ | 53,326 | $ | 631,649 | $ | 95,900 | $ | 3,920,069 | $ | 2,135 | $ | 3,922,204 | |||||||||||||||||
Net income | — | — | — | 547,044 | — | 547,044 | 206 | 547,250 | ||||||||||||||||||||||||
Other comprehensive loss | — | — | — | — | (70,617 | ) | (70,617 | ) | (43 | ) | (70,660 | ) | ||||||||||||||||||||
Stapled unit offering, net of issuance costs (note 11(c)) | 3,979 | 303,131 | — | — | — | 303,131 | — | 303,131 | ||||||||||||||||||||||||
Distributions (note 10) | — | — | — | (93,544 | ) | — | (93,544 | ) | (144 | ) | (93,688 | ) | ||||||||||||||||||||
Contributions from non-controlling interests | — | — | — | — | — | — | 14 | 14 | ||||||||||||||||||||||||
Units issued under the stapled unit plan (note 11(a)) | 17 | 1,317 | — | — | — | 1,317 | — | 1,317 | ||||||||||||||||||||||||
As at June 30, 2021 | 65,684 | $ | 3,443,642 | $ | 53,326 | $ | 1,085,149 | $ | 25,283 | $ | 4,607,400 | $ | 2,168 | $ | 4,609,568 | |||||||||||||||||
Six Months Ended June 30, 2020 | ||||||||||||||||||||||||||||||||
Number of units (000s) | Stapled units | Contributed surplus | Retained earnings | Accumulated other comprehensive income | Stapled unitholders’ equity | Non- controlling interests | Equity | |||||||||||||||||||||||||
As at January 1, 2020 | 54,052 | $ | 2,608,050 | $ | 54,654 | $ | 367,249 | $ | 116,190 | $ | 3,146,143 | $ | 1,967 | $ | 3,148,110 | |||||||||||||||||
Net income | — | — | — | 156,953 | — | 156,953 | 101 | 157,054 | ||||||||||||||||||||||||
Other comprehensive income | — | — | — | — | 119,782 | 119,782 | 20 | 119,802 | ||||||||||||||||||||||||
Stapled unit offering, net of issuance costs (note 11(c)) | 4,255 | 276,918 | — | — | — | 276,918 | — | 276,918 | ||||||||||||||||||||||||
Distributions (note 10) | — | — | — | (79,060 | ) | — | (79,060 | ) | (130 | ) | (79,190 | ) | ||||||||||||||||||||
Contributions from non-controlling interests | — | — | — | — | — | — | 72 | 72 | ||||||||||||||||||||||||
Units issued under the stapled unit plan (note 11(a)) | 22 | 1,278 | — | — | — | 1,278 | — | 1,278 | ||||||||||||||||||||||||
Units repurchased for cancellation (note 11(b)) | (491 | ) | (23,689 | ) | (1,328 | ) | — | — | (25,017 | ) | — | (25,017 | ) | |||||||||||||||||||
As at June 30, 2020 | 57,838 | $ | 2,862,557 | $ | 53,326 | $ | 445,142 | $ | 235,972 | $ | 3,596,997 | $ | 2,030 | $ | 3,599,027 |
See accompanying notes
Granite REIT 2021 Second Quarter Report 59
Condensed Combined Statements of Cash Flows
(Canadian dollars in thousands)
(Unaudited)
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||
Note | 2021 | 2020 | 2021 | 2020 | ||||||||||||||||
OPERATING ACTIVITIES | ||||||||||||||||||||
Net income | $ | 316,974 | $ | 75,642 | $ | 547,250 | $ | 157,054 | ||||||||||||
Items not involving operating cash flows | 14(a) | (254,786 | ) | (19,633 | ) | (422,685 | ) | (43,330 | ) | |||||||||||
Current income tax expense | 13(a) | 4,301 | 2,099 | 6,303 | 3,376 | |||||||||||||||
Income taxes (paid) recovered | (820 | ) | (397 | ) | (1,788 | ) | 23 | |||||||||||||
Interest expense | 9,316 | 7,365 | 19,413 | 13,584 | ||||||||||||||||
Interest paid | (8,579 | ) | (6,947 | ) | (14,388 | ) | (12,304 | ) | ||||||||||||
Changes in working capital balances | 14(b) | (1,671 | ) | 7,040 | (5,065 | ) | 1,628 | |||||||||||||
Cash provided by operating activities | 64,735 | 65,169 | 129,040 | 120,031 | ||||||||||||||||
INVESTING ACTIVITIES | ||||||||||||||||||||
Investment properties: | ||||||||||||||||||||
Property acquisitions | 3 | (133,376 | ) | (331,805 | ) | (219,289 | ) | (360,754 | ) | |||||||||||
Proceeds from disposals, net | 4, 5 | 12,809 | — | 23,204 | — | |||||||||||||||
Leasing commissions paid | (390 | ) | — | (880 | ) | — | ||||||||||||||
Tenant allowances paid | (144 | ) | — | (301 | ) | (241 | ) | |||||||||||||
Additions to income-producing properties | (783 | ) | (1,083 | ) | (783 | ) | (3,318 | ) | ||||||||||||
Additions to properties under development | (4,865 | ) | (26,122 | ) | (17,286 | ) | (32,194 | ) | ||||||||||||
Construction funds released from escrow | 6 | — | 4,291 | 28 | 6,591 | |||||||||||||||
Acquisition deposits | (1,000 | ) | (72,450 | ) | (1,000 | ) | (89,879 | ) | ||||||||||||
Fixed asset additions | (373 | ) | (156 | ) | (397 | ) | (734 | ) | ||||||||||||
Cash used in investing activities | (128,122 | ) | (427,325 | ) | (216,704 | ) | (480,529 | ) | ||||||||||||
FINANCING ACTIVITIES | ||||||||||||||||||||
Monthly distributions paid | (46,288 | ) | (38,890 | ) | (92,551 | ) | (78,140 | ) | ||||||||||||
Proceeds from unsecured debentures, net of financing costs | — | 497,894 | — | 497,894 | ||||||||||||||||
Repayment of lease obligations | 8 | (177 | ) | (366 | ) | (359 | ) | (444 | ) | |||||||||||
Repayment of unsecured debt, including early redemption premium | 7(a) | — | — | (253,963 | ) | — | ||||||||||||||
Settlement of cross currency interest rate swap | 7(a) | — | — | (18,787 | ) | — | ||||||||||||||
Financing costs paid | 6 | — | — | (2,914 | ) | (30 | ) | |||||||||||||
Distributions to non-controlling interests | (144 | ) | (130 | ) | (144 | ) | (130 | ) | ||||||||||||
Proceeds from stapled unit offerings, net of issuance costs | 11(c) | 303,132 | 277,511 | 303,132 | 277,511 | |||||||||||||||
Repurchase of stapled units | 11(b) | — | — | — | (25,017 | ) | ||||||||||||||
Cash provided by (used in) financing activities | 256,523 | 736,019 | (65,586 | ) | 671,644 | |||||||||||||||
Effect of exchange rate changes on cash and cash equivalents | 4,295 | 1,313 | 112 | 7,425 | ||||||||||||||||
Net increase (decrease) in cash and cash equivalents during the period | 197,431 | 375,176 | (153,138 | ) | 318,571 | |||||||||||||||
Cash and cash equivalents, beginning of period | 480,711 | 242,072 | 831,280 | 298,677 | ||||||||||||||||
Cash and cash equivalents, end of period | $ | 678,142 | $ | 617,248 | $ | 678,142 | $ | 617,248 |
See accompanying notes
60 Granite REIT 2021 Second Quarter Report
Notes to Condensed Combined Financial Statements
(All amounts in thousands of Canadian dollars unless otherwise noted)
(Unaudited)
1. NATURE AND DESCRIPTION OF THE TRUST |
Effective January 3, 2013, Granite Real Estate Inc. (“Granite Co.”) completed its conversion from a corporate structure to a stapled unit real estate investment trust (“REIT”) structure. All of the common shares of Granite Co. were exchanged, on a one-for-one basis, for stapled units, each of which consists of one unit of Granite Real Estate Investment Trust (“Granite REIT”) and one common share of Granite REIT Inc. (“Granite GP”). Granite REIT is an unincorporated, open-ended, limited purpose trust established under and governed by the laws of the province of Ontario and created pursuant to a Declaration of Trust dated September 28, 2012 and as subsequently amended on January 3, 2013 and December 20, 2017. Granite GP was incorporated on September 28, 2012 under the Business Corporations Act (British Columbia). Granite REIT, Granite GP and their subsidiaries (together “Granite” or the “Trust”) are carrying on the business previously conducted by Granite Co.
The stapled units trade on the Toronto Stock Exchange and on the New York Stock Exchange. The principal office of Granite REIT is 77 King Street West, Suite 4010, P.O. Box 159, Toronto-Dominion Centre, Toronto, Ontario, M5K 1H1, Canada. The registered office of Granite GP is Suite 2600, Three Bentall Centre, 595 Burrard Street, P.O. Box 49314, Vancouver, British Columbia, V7X 1L3, Canada.
The Trust is a Canadian-based REIT engaged in the acquisition, development, ownership and management of logistics, warehouse and industrial properties in North America and Europe.
These condensed combined financial statements were approved by the Board of Trustees of Granite REIT and Board of Directors of Granite GP on August 4, 2021.
2. SIGNIFICANT ACCOUNTING POLICIES |
(a) | Basis of Presentation and Statement of Compliance |
The condensed combined financial statements for the three and six month periods ended June 30, 2021 have been prepared in accordance with International Accounting Standard 34, Interim Financial Reporting (“IAS 34”) as issued by the International Accounting Standards Board (“IASB”). These interim condensed combined financial statements do not include all the information and disclosures required in the annual financial statements, which were prepared in accordance with International Financial Reporting Standards (“IFRS”), and should be read in conjunction with the Trust’s annual financial statements as at and for the year ended December 31, 2020.
(b) | Combined Financial Statements and Basis of Consolidation |
As a result of the REIT conversion described in note 1, the Trust does not have a single parent; however, each unit of Granite REIT and each share of Granite GP trade as a single stapled unit and accordingly, Granite REIT and Granite GP have identical ownership. Therefore, these financial statements have been prepared on a combined basis whereby the assets, liabilities and results of Granite GP and Granite REIT have been combined. The combined financial statements include the subsidiaries of Granite GP and Granite REIT. Subsidiaries are fully consolidated by Granite GP or Granite REIT from the date of acquisition, being the date on which control is obtained. The
Granite REIT 2021 Second Quarter Report 61
subsidiaries continue to be consolidated until the date that such control ceases. Control exists when Granite GP or Granite REIT have power, exposure or rights to variable returns and the ability to use their power over the entity to affect the amount of returns it generates.
All intercompany balances, income and expenses and unrealized gains and losses resulting from intercompany transactions are eliminated.
(c) | Accounting policies |
The condensed combined financial statements have been prepared using the same accounting policies as were used for the Trust’s annual combined financial statements and the notes thereto for the year ended December 31, 2020.
(d) | Future Accounting Policy Changes |
As at June 30, 2021, there are no new accounting standards issued but not yet applicable to the condensed combined financial statements.
(e) | COVID-19 Pandemic |
The coronavirus disease (“COVID-19”) pandemic has resulted in governments across Granite’s operating markets enacting emergency measures to combat the spread of the virus. These measures, which include the implementation of travel bans, self-imposed quarantine periods and social distancing, have caused material disruption to businesses globally resulting in an economic slowdown. Global equity and capital markets have also experienced significant volatility during this time. Governments across the globe have reacted with significant monetary and fiscal interventions designed to stabilize economic conditions. Granite is continuing to monitor the impact of the COVID-19 pandemic on its business, liquidity and results of operations.
During the three and six month periods ended June 30, 2021, there has not been any significant impact on Granite’s operations, assets or liabilities as a result of COVID-19. Throughout the pandemic thus far, Granite has collected 100% of rents due and therefore has not recognized any provisions for uncollected rent at this time. Granite reviewed its future cash flow projections and the valuation of its properties considering the impacts of the COVID-19 pandemic during the six month period ended June 30, 2021 and Granite does not expect, at this time, that COVID-19 will have a significant negative impact to the fair value of its investment property portfolio.
Granite continues to review its future cash flow projections and the valuation of its investment properties in light of the COVID-19 pandemic. The carrying value of Granite’s investment properties reflects its best estimate for the highest and best use as at June 30, 2021 (note 4). The duration of the COVID-19 pandemic, and the potential for further waves of new infections in the markets where Granite operates that could lead to additional emergency measures, cannot be predicted. As such, the length and full scope of the economic impact of COVID-19 and other consequential changes it will have on Granite’s business and operations in the long-term cannot be forecasted with certainty at this time. Certain aspects of Granite’s business and operations that could potentially be impacted include rental income, occupancy, capital expenditures, future demand for space and market rents, all of which ultimately impact the underlying valuation of investment properties.
62 Granite REIT 2021 Second Quarter Report
3. ACQUISITIONS |
During the six month period ended June 30, 2021 and 2020, Granite made the following property acquisitions:
Acquisitions During The Six Months Ended June 30, 2021
Property | Location | Date acquired | Property purchase price | Transaction costs | Total acquisition cost | |||||||||||||||
Income-producing properties: | ||||||||||||||||||||
3090 Highway 42(1) | | Locust Grove, GA | | March 12, 2021 | $ | 85,512 | $ | 401 | $ | 85,913 | ||||||||||
3801 Rock Creek Blvd. | Joliet, IL | June 25, 2021 | 30,247 | 75 | 30,322 | |||||||||||||||
3900 Rock Creek Blvd. | Joliet, IL | June 25, 2021 | 34,673 | 85 | 34,758 | |||||||||||||||
1695-1701 Crossroads Dr. | Joliet, IL | June 25, 2021 | 50,657 | 118 | 50,775 | |||||||||||||||
201,089 | 679 | 201,768 | ||||||||||||||||||
Property under development: | ||||||||||||||||||||
2120 Logistics Way | | Murfreesboro, TN | | June 30, 2021 | 17,308 | 213 | 17,521 | |||||||||||||
$ | 218,397 | $ | 892 | $ | 219,289 |
(1) | The Trust acquired the leasehold interest in the property which resulted in the recognition of a right-of-use asset, including transaction costs, of $85,913. The Trust will acquire freehold title to the property on December 1, 2028. |
The property under development in Murfreesboro, Tennessee is expected to be completed by September 2022. As at June 30, 2021, the remaining costs to complete the development are expected to be approximately $64.7 million (US$52.2 million) and are included in the commitments and contingencies note (note 17).
Acquisitions During The Six Months Ended June 30, 2020
Property | Location | Date acquired | Property purchase price | Transaction costs | Total acquisition cost | |||||||||||||||
Property under development: | ||||||||||||||||||||
Aquamarijnweg 2 | | Bleiswijk, Netherlands | | March 13, 2020 | $ | 28,804 | $ | 145 | $ | 28,949 | ||||||||||
Income-producing properties: | ||||||||||||||||||||
Oude Graaf 15 | Weert, Netherlands | May 1, 2020 | 31,910 | 173 | 32,083 | |||||||||||||||
Midwest portfolio (four properties): | ||||||||||||||||||||
6201 Green Pointe Drive South, | | Groveport, OH, Hamilton, OH, West Chester, OH, and Indianapolis, IN | | June 18, 2020 | 177,647 | 757 | 178,404 | |||||||||||||
Memphis portfolio (three properties): | ||||||||||||||||||||
4460 E. Holmes Road, | | Memphis, TN, and Southaven, MS | June 18, 2020 | 111,590 | 464 | 112,054 | ||||||||||||||
321,147 | 1,394 | 322,541 | ||||||||||||||||||
Development land: | ||||||||||||||||||||
5005 Parker Henderson Road | Fort Worth, TX | June 8, 2020 | 8,932 | 332 | 9,264 | |||||||||||||||
$ | 358,883 | $ | 1,871 | $ | 360,754 |
Granite REIT 2021 Second Quarter Report 63
During the six month period ended June 30, 2021, transaction costs of $0.9 million (2020 — $1.9 million), which included legal and advisory costs, were first capitalized to the cost of the respective properties and then subsequently expensed to net fair value gains on investment properties on the condensed combined statements of net income as a result of measuring the properties at fair value.
4. INVESTMENT PROPERTIES |
As at | June 30, 2021 | December 31, 2020 | ||||||
Income-producing properties | $ | 6,307,725 | $ | 5,786,338 | ||||
Properties under development | 60,949 | 31,488 | ||||||
Land held for development | 27,886 | 37,757 | ||||||
$ | 6,396,560 | $ | 5,855,583 |
Changes in investment properties are shown in the following table:
Six Months Ended June 30, 2021 | Year Ended December 31, 2020 | |||||||||||||||||||||||||||||||
Income- producing properties | Properties under development | Land held for development | Income- producing properties | Properties under | Land held for development | |||||||||||||||||||||||||||
Balance, beginning of period | $ | 5,786,338 | $ | 31,488 | $ | 37,757 | $ | 4,377,623 | $ | 51,310 | $ | 28,966 | ||||||||||||||||||||
Maintenance or improvements | 1,582 | — | — | 3,997 | — | — | ||||||||||||||||||||||||||
Leasing commissions | 177 | — | — | 3,449 | — | — | ||||||||||||||||||||||||||
Tenant allowances | 301 | — | — | 1,784 | — | — | ||||||||||||||||||||||||||
Developments or expansions | 2,071 | 4,745 | — | 12,582 | 39,083 | 458 | ||||||||||||||||||||||||||
Acquisitions (note 3) | 201,768 | 17,521 | — | 1,000,618 | 35,777 | 9,264 | ||||||||||||||||||||||||||
Costs to complete acquired property (note 6) | 28 | — | — | 8,622 | — | — | ||||||||||||||||||||||||||
Disposals (note 5) | (23,780 | ) | — | — | (31,276 | ) | — | — | ||||||||||||||||||||||||
Transfer to properties under development | — | 8,952 | (8,952 | ) | — | — | — | |||||||||||||||||||||||||
Transfer to income-producing properties | — | — | — | 97,733 | (97,733 | ) | — | |||||||||||||||||||||||||
Amortization of straight-line rent | 4,847 | — | — | 8,842 | — | — | ||||||||||||||||||||||||||
Amortization of tenant allowances | (2,599 | ) | — | — | (5,321 | ) | — | — | ||||||||||||||||||||||||
Other changes | 203 | — | — | (16 | ) | — | — | |||||||||||||||||||||||||
Fair value gains (losses), net | 517,541 | — | — | 273,914 | (145 | ) | (332 | ) | ||||||||||||||||||||||||
Foreign currency translation, net | (180,752 | ) | (1,757 | ) | (919 | ) | 33,787 | 3,196 | (599 | ) | ||||||||||||||||||||||
Balance, end of period | $ | 6,307,725 | $ | 60,949 | $ | 27,886 | $ | 5,786,338 | $ | 31,488 | $ | 37,757 |
The Trust determines the fair value of an income-producing property based upon, among other things, rental income from current leases and assumptions about rental income from future leases reflecting market conditions and lease renewals at the applicable balance sheet dates, less future cash outflows in respect of such leases. Fair values are primarily determined by discounting the expected future cash flows, generally over a term of 10 years, plus a terminal value based on the application of a capitalization rate to estimated year 11 cash flows. The fair values of properties
64 Granite REIT 2021 Second Quarter Report
under development are measured using a discounted cash flow model, net of costs to complete, as of the balance sheet date. The Trust measures its investment properties using valuations prepared by management. The Trust does not measure its investment properties based on valuations prepared by external appraisers but uses such external appraisals as data points, together with other external market information accumulated by management, in arriving at its own conclusions on values. Management uses valuation assumptions such as discount rates, terminal capitalization rates and market rental rates applied in external appraisals or sourced from valuation experts; however, the Trust also uses its historical renewal experience with tenants, its direct knowledge of the specialized nature of certain of Granite’s portfolio and tenant profile and its knowledge of the actual condition of the properties in making business judgments about lease renewal probabilities, renewal rents and capital expenditures. There has been no change in the valuation methodology during the period.
Refer to note 2(e) for a discussion of the impact of the COVID-19 pandemic on the Trust’s business and operations, including the valuation of investment properties.
Included in investment properties is $31.2 million (December 31, 2020 — $27.2 million) of net straight-line rent receivables arising from the recognition of rental revenue on a straight-line basis over the lease term.
Details about contractual obligations to purchase, construct and develop properties can be found in the commitments and contingencies note (note 17).
Valuations are most sensitive to changes in discount rates and terminal capitalization rates. The key valuation metrics for income-producing properties by country are set out below:
As at | June 30, 2021 | December 31, 2020 | ||||||||||||||||||||||||||||||
Weighted average(1) | Maximum | Minimum | Weighted average(1) | Maximum | Minimum | |||||||||||||||||||||||||||
Canada | ||||||||||||||||||||||||||||||||
Discount rate | 5.38% | 5.75% | 4.75% | 5.71% | 6.25% | 5.25% | ||||||||||||||||||||||||||
Terminal capitalization rate | 4.80% | 5.25% | 4.25% | 5.22% | 5.50% | 4.75% | ||||||||||||||||||||||||||
United States | ||||||||||||||||||||||||||||||||
Discount rate | 5.87% | 9.25% | 5.00% | 6.18% | 9.25% | 5.00% | ||||||||||||||||||||||||||
Terminal capitalization rate | 5.22% | 8.50% | 4.25% | 5.58% | 8.50% | 4.75% | ||||||||||||||||||||||||||
Germany | ||||||||||||||||||||||||||||||||
Discount rate | 6.73% | 9.75% | 5.25% | 6.85% | 9.00% | 5.50% | ||||||||||||||||||||||||||
Terminal capitalization rate | 5.63% | 8.75% | 4.25% | 5.83% | 8.25% | 4.50% | ||||||||||||||||||||||||||
Austria | ||||||||||||||||||||||||||||||||
Discount rate | 8.58% | 10.50% | 8.25% | 8.58% | 10.50% | 8.25% | ||||||||||||||||||||||||||
Terminal capitalization rate | �� | 7.47% | 9.75% | 7.00% | 7.47% | 9.75% | 7.00% | |||||||||||||||||||||||||
Netherlands | ||||||||||||||||||||||||||||||||
Discount rate | 4.59% | 6.50% | 3.70% | 4.99% | 6.25% | 4.40% | ||||||||||||||||||||||||||
Terminal capitalization rate | 5.24% | 7.75% | 3.90% | 5.58% | 7.40% | 4.80% | ||||||||||||||||||||||||||
Other | ||||||||||||||||||||||||||||||||
Discount rate | 6.85% | 7.00% | 6.75% | 7.32% | 7.50% | 7.00% | ||||||||||||||||||||||||||
Terminal capitalization rate | 6.30% | 6.50% | 6.00% | 6.97% | 9.75% | 6.00% | ||||||||||||||||||||||||||
Total | ||||||||||||||||||||||||||||||||
Discount rate | 6.05% | 10.50% | 3.70% | 6.38% | 10.50% | 4.40% | ||||||||||||||||||||||||||
Terminal capitalization rate | 5.45% | 9.75% | 3.90% | 5.82% | 9.75% | 4.50% |
(1) | Weighted based on income-producing property fair value. |
Granite REIT 2021 Second Quarter Report 65
5. DISPOSITIONS |
During the six month period ended June 30, 2021, Granite disposed of two properties located in the United Kingdom and Austria. The details of the disposed properties are as follows:
Property | Location | Date disposed | Sale price | |||||||||
Hedera Road, Ravensbank Business Park | Redditch, United Kingdom | January 28, 2021 | $ | 10,550 | ||||||||
Puchberger Straße 267 | Weikersdorf, Austria | June 30, 2021 | 13,230 | |||||||||
$ | 23,780 |
There were no property dispositions during the six month period ended June 30, 2020.
During the three and six month periods ended June 30, 2021, Granite incurred $0.4 million (2020 — nil) and $0.6 million (2020 — nil), respectively, of broker commissions and legal and advisory costs associated with the disposal which are included in loss on sale of investment properties on the condensed combined statements of net income.
6. NON-CURRENT ASSETS |
Construction Funds In Escrow
On November 19, 2019, Granite acquired a developed property located at 1301 Chalk Hill Road, Dallas, Texas which had outstanding construction work. Consequently, $20.5 million (US$15.5 million) of the purchase price was placed in escrow to pay for the remaining construction costs. The funds are released from escrow as the construction is completed. As at June 30, 2021, $8.1 million (US$6.6 million) remained in escrow (December 31, 2020 — $8.4 million (US$6.6 million)). As construction is completed, the construction costs are capitalized to the cost of the investment property. During the six month period ended June 30, 2021, less than $0.1 million (less than US$0.1 million) was released from escrow and capitalized to the property (note 4) (2020 — $6.6 million (US$4.8 million)).
Other Assets
As at | June 30, 2021 | December 31, 2020 | ||||||
Deferred financing costs associated with the revolving credit facility | $ | 2,760 | $ | 599 | ||||
Long-term receivables | 321 | 349 | ||||||
$ | 3,081 | $ | 948 |
On March 31, 2021, the Trust amended its existing unsecured revolving credit facility agreement to extend the existing maturity date from February 1, 2023 to March 31, 2026 and increased its borrowing capacity under the credit facility from $0.5 billion to $1.0 billion (note 9), resulting in financing costs of $2.9 million being incurred. In addition, during the six month period ended June 30, 2021, Granite recorded an acceleration of $0.5 million amortization for its original credit facility’s financing costs (note 12(d)) (2020 — nil).
66 Granite REIT 2021 Second Quarter Report
7. UNSECURED DEBT AND CROSS CURRENCY INTEREST RATE SWAPS |
(a) | Unsecured Debentures and Term Loans, Net |
As at | June 30, 2021 | December 31, 2020 | ||||||||||||||||||
Maturity Date | Amortized Cost(1) | Principal issued and | Amortized Cost(1) | Principal issued and | ||||||||||||||||
2021 Debentures | July 5, 2021 | $ | — | $ | — | $ | 249,870 | $ | 250,000 | |||||||||||
2023 Debentures | November 30, 2023 | 399,226 | 400,000 | 399,066 | 400,000 | |||||||||||||||
2027 Debentures | June 4, 2027 | 497,397 | 500,000 | 497,179 | 500,000 | |||||||||||||||
2030 Debentures | December 18, 2030 | 497,189 | 500,000 | 497,060 | 500,000 | |||||||||||||||
2024 Term Loan | December 19, 2024 | 229,019 | 229,483 | 235,419 | 235,949 | |||||||||||||||
2026 Term Loan | December 11, 2026 | 299,567 | 300,000 | 299,528 | 300,000 | |||||||||||||||
$ | 1,922,398 | $ | 1,929,483 | $ | 2,178,122 | $ | 2,185,949 |
(1) | The amounts outstanding are net of deferred financing costs and, in the case of the term loans, debt modification losses. The deferred financing costs and debt modification losses are amortized using the effective interest method and are recorded in interest expense. |
As at | June 30, 2021 | December 31, 2020 | ||||||
Unsecured Debentures and Term Loans, Net | ||||||||
Non-current | $ | 1,922,398 | $ | 1,928,252 | ||||
Current | — | 249,870 | ||||||
$ | 1,922,398 | $ | 2,178,122 |
On January 4, 2021, the Trust redeemed in full the outstanding $250.0 million aggregate principal amount of the 2021 Debentures. Granite incurred early redemption premium of $4.0 million, which have been recorded in interest expense and other financing costs in the condensed combined statement of net income (note 12(d)). In conjunction with the redemption, the 2021 Cross Currency Interest Rate Swap was terminated on January 4, 2021, and the related mark to market liability of $18.8 million was settled.
(b) | Cross Currency Interest Rate Swaps |
As at | June 30, 2021 | December 31, 2020 | ||||||
Financial assets at fair value | ||||||||
2027 Cross Currency Interest Rate Swap | $ | 38,300 | $ | 28,676 | ||||
2030 Cross Currency Interest Rate Swap | 10,516 | — | ||||||
$ | 48,816 | $ | 28,676 | |||||
Financial liabilities at fair value | ||||||||
2021 Cross Currency Interest Rate Swap | $ | — | $ | 16,953 | ||||
2023 Cross Currency Interest Rate Swap | 12,351 | 36,540 | ||||||
2030 Cross Currency Interest Rate Swap | — | 10,545 | ||||||
2024 Cross Currency Interest Rate Swap | 16,300 | 25,370 | ||||||
2026 Cross Currency Interest Rate Swap | 820 | 24,856 | ||||||
$ | 29,471 | $ | 114,264 |
Granite REIT 2021 Second Quarter Report 67
As at | June 30, 2021 | December 31, 2020 | ||||||
Financial liabilities at fair value | ||||||||
Non-current | $ | 29,471 | $ | 97,311 | ||||
Current | — | 16,953 | ||||||
$ | 29,471 | $ | 114,264 |
On July 3, 2014, the Trust entered into a cross currency interest rate swap (the “2021 Cross Currency Interest Rate Swap”) to exchange the 3.788% semi-annual interest payments from the 2021 Debentures for Euro denominated payments at a 2.68% fixed interest rate. In addition, under the terms of the swap, the Trust will pay principal proceeds of €171.9 million in exchange for which it will receive $250.0 million on July 5, 2021. On January 4, 2021, the 2021 Cross Currency Interest Rate Swap was terminated in conjunction with the redemption of the 2021 Debentures (note 7(a)).
On December 20, 2016, the Trust entered into a cross currency interest rate swap (the “2023 Cross Currency Interest Rate Swap”) to exchange the 3.873% semi-annual interest payments from the 2023 Debentures for Euro denominated payments at a 2.43% fixed interest rate. In addition, under the terms of the swap, the Trust will pay principal proceeds of €281.1 million in exchange for which it will receive $400.0 million on November 30, 2023.
On September 24, 2019, in conjunction with a refinancing, the Trust entered into a new cross currency interest rate swap (the “2024 Cross Currency Interest Rate Swap”) to exchange the LIBOR plus margin monthly interest payments from the 2024 Term Loan for Euro denominated payments at a 0.522% fixed interest rate. In addition, under the terms of the 2024 Cross Currency Interest Rate Swap, Granite will pay principal proceeds of €168.2 million in exchange for which it will receive US$185.0 million on December 19, 2024.
On November 27, 2019, also in conjunction with a refinancing, the Trust entered into a new cross currency interest rate swap (the “2026 Cross Currency Interest Rate Swap”) to exchange the CDOR plus margin monthly interest payments from the 2026 Term Loan for Euro denominated payments at a 1.355% fixed interest rate. In addition, under the terms of the swap, the Trust will pay principal proceeds of €205.5 million in exchange for which it will receive $300.0 million on December 11, 2026.
On June 4, 2020, the Trust entered into a cross currency interest rate swap (the “2027 Cross Currency Interest Rate Swap”) to exchange the $500.0 million proceeds and the 3.062% semi-annual interest payments from the 2027 Debentures for US$370.3 million and US dollar denominated interest payments at a 2.964% fixed interest rate. In addition, under the terms of the swap, the Trust will pay principal proceeds of US$370.3 million in exchange for which it will receive $500.0 million on June 4, 2027.
On December 18, 2020, the Trust entered into a cross currency interest rate swap (the “2030 Cross Currency Interest Rate Swap”) to exchange the 2.378% semi-annual interest payments from the 2030 Debentures for Euro denominated interest payments at a 1.045% fixed interest rate. In addition, under the terms of the swap, the Trust will pay principal proceeds of €319.4 million in exchange for which it will receive $500.0 million on December 18, 2030.
The cross currency interest rate swaps are designated as net investment hedges of the Trust’s investments in foreign operations. The effectiveness of the hedges is assessed quarterly. Gains
68 Granite REIT 2021 Second Quarter Report
and losses associated with the effective portion of the hedges are recognized in other comprehensive income. For the three and six month periods ended June 30, 2021, the Trust has assessed the net investment hedge associated with each cross currency interest rate swap, except for the 2021 Cross Currency Interest Rate Swap and a portion of the 2024 Cross Currency Interest Rate Swap, to be effective.
On December 18, 2020, as a result of the designation of the 2030 Cross Currency Interest Rate Swap, the Trust de-designated the 2021 Cross Currency Interest Rate Swap. Since the Trust did not employ hedge accounting for the 2021 Cross Currency Interest Rate Swap from the period January 1 to January 3, 2021, a fair value loss of $0.7 million is recognized in fair value losses on financial instruments, net (note 12(e)) in the condensed combined statement of net income.
With the refinancing of the 2024 Term Loan in 2019, the Trust has assessed only the foreign exchange movements associated with the fair value change of the 2024 Cross Currency Interest Rate Swap to be effective. Accordingly, the change in fair value relating to foreign exchange movements on the 2024 Cross Currency Interest Rate Swap is recorded in other comprehensive income. For the three and six month periods ended June 30, 2021, since there is no effective hedge for the interest and other movements associated with the fair value change of the 2024 Cross Currency Interest Rate Swap, a fair value gain of $0.6 million and $0.9 million is recognized in fair value losses on financial instruments, net (note 12(e)), respectively, in the condensed combined statements of net income.
The Trust has elected to record the differences resulting from the lower interest rates associated with the cross currency interest rate swaps in the condensed combined statements of net income.
8. LEASE OBLIGATIONS |
As at June 30, 2021, the Trust had leases for the use of office space, office and other equipment, and ground leases for the land upon which four income-producing properties in Europe and Canada are situated. The Trust recognized these leases as right-of-use assets and recorded related lease liability obligations.
Future minimum lease payments relating to the right-of-use assets as at June 30, 2021 in aggregate for the next five years and thereafter are as follows:
Remainder of 2021 | $ | 427 | ||
2022 | 535 | |||
2023 | 321 | |||
2024 | 294 | |||
2025 | 261 | |||
2026 and thereafter | 30,918 | |||
$ | 32,756 |
During the three and six month periods ended June 30, 2021, the Trust recognized $0.3 million (2020 — $0.4 million) and $0.8 million (2020 — $0.8 million) of interest expense, respectively, related to lease obligations (note 12(d)).
Granite REIT 2021 Second Quarter Report 69
9. CURRENT LIABILITIES |
Deferred Revenue
Deferred revenue relates to prepaid and unearned revenue received from tenants and fluctuates with the timing of rental receipts.
Bank Indebtedness
On March 31, 2021, the Trust amended its existing unsecured revolving credit facility agreement to extend the existing maturity date of February 1, 2023 to March 31, 2026. In addition, the credit facility’s limit increased from $0.5 billion to $1.0 billion. Draws on the credit facility are available by way of Canadian dollar, US dollar or Euro denominated loans or Canadian dollar or US dollar denominated letters of credit. The credit facility provides Granite the ability to increase the amount of the commitment by an additional aggregate principal amount of up to $500.0 million with the consent of the participating lenders. As at June 30, 2021, the Trust had no amounts drawn (December 31, 2020 — nil) from the credit facility and $1.7 million (December 31, 2020 — $1.0 million) in letters of credit issued against the facility.
Accounts Payable and Accrued Liabilities
As at | June 30, 2021 | December 31, 2020 | ||||||
Accounts payable | $ | 2,256 | $ | 3,849 | ||||
Commodity tax payable | 5,807 | 4,337 | ||||||
Tenant security deposits | 6,143 | 6,793 | ||||||
Employee unit-based compensation | 7,824 | 7,118 | ||||||
Trustee/director unit-based compensation | 6,291 | 5,219 | ||||||
Accrued salaries, incentives and benefits | 3,328 | 5,783 | ||||||
Accrued interest payable | 2,952 | 7,956 | ||||||
Accrued construction payable | 1,985 | 6,285 | ||||||
Accrued professional fees | 1,621 | 2,620 | ||||||
Accrued property operating costs | 10,849 | 8,878 | ||||||
Other tenant related liabilities | 3,624 | 1,690 | ||||||
Other accrued liabilities | 3,569 | 669 | ||||||
$ | 56,249 | $ | 61,197 |
10. DISTRIBUTIONS TO STAPLED UNITHOLDERS |
Total distributions declared to stapled unitholders in the three month period ended June 30, 2021 were $47.3 million (2020 — $39.9 million) or 75.0 cents per stapled unit (2020 — 72.6 cents per stapled unit). Total distributions declared to stapled unitholders in the six month period ended June 30, 2021 were $93.5 million (2020 — $79.1 million) or $1.50 per stapled unit (2020 — $1.45 per stapled unit).
Distributions payable at June 30, 2021 of $16.4 million (25.0 cents per stapled unit), representing the June 2021 monthly distribution, were paid on July 15, 2021. Distributions payable at December 31, 2020 of $15.4 million were paid on January 15, 2021 and represented the December 2020 monthly distribution.
Subsequent to June 30, 2021, the distributions declared in July 2021 in the amount of $16.4 million or 25.0 cents per stapled unit will be paid on August 16, 2021.
70 Granite REIT 2021 Second Quarter Report
11. STAPLED UNITHOLDERS’ EQUITY |
(a) | Unit-Based Compensation |
Incentive Stock Option Plan
The Incentive Stock Option Plan allows for the grant of stock options or stock appreciation rights to directors, officers, employees and consultants. As at June 30, 2021 and December 31, 2020, there were no options outstanding under this plan.
Director/Trustee Deferred Share Unit Plan
The Trust has two Non-Employee Director Share-Based Compensation Plans (the “DSPs”) which provide for a deferral of up to 100% of each non-employee director’s total annual remuneration, at specified levels elected by each director. A reconciliation of the changes in the notional deferred share units (“DSUs”) outstanding is presented below:
2021 | 2020 | |||||||||||||||||||
Number (000s) | Weighted Average Grant Date Fair Value | Number (000s) | Weighted Average Grant Date Fair Value | |||||||||||||||||
DSUs outstanding, January 1 | 67 | $ | 52.93 | 50 | $ | 48.01 | ||||||||||||||
Granted | 9 | 78.22 | 8 | 66.31 | ||||||||||||||||
DSUs outstanding, June 30 | 76 | $ | 56.01 | 58 | $ | 50.70 |
Executive Deferred Stapled Unit Plan
The Executive Deferred Stapled Unit Plan (the “Restricted Stapled Unit Plan”) of the Trust provides for the issuance of Restricted Share Units (“RSUs”) and Performance Share Units (“PSUs”) and is designed to provide equity-based compensation in the form of stapled units to executives and other employees (the “Participants”). A reconciliation of the changes in notional stapled units outstanding under the Restricted Stapled Unit Plan is presented below:
2021 | 2020 | |||||||||||||||||||
Number (000s) | Weighted Average Fair Value | Number (000s) | Weighted Average Grant Date Fair Value | |||||||||||||||||
RSUs and PSUs outstanding, January 1 | 128 | $ | 59.83 | 145 | $ | 55.93 | ||||||||||||||
New grants and distributions(1) | 49 | 78.24 | 52 | 66.39 | ||||||||||||||||
Forfeited | — | — | (1 | ) | 67.66 | |||||||||||||||
Settled in cash | (13 | ) | 60.09 | (23 | ) | 55.35 | ||||||||||||||
Settled in stapled units | (17 | ) | 60.09 | (22 | ) | 55.35 | ||||||||||||||
RSUs and PSUs outstanding, June 30(2) | 147 | $ | 65.58 | 151 | $ | 59.57 |
(1) | Includes 18.7 RSUs and 25.0 PSUs granted during the six month period ended June 30, 2021 (2020 — 20.8 RSUs and 26.5 PSUs). |
(2) | Total restricted stapled units outstanding at June 30, 2021 include a total of 69.8 RSUs and 76.8 PSUs granted (2020 — 94.1 RSUs and 56.8 PSUs). |
Granite REIT 2021 Second Quarter Report 71
The fair value of the outstanding RSUs was $4.9 million at June 30, 2021 and is based on the market price of the Trust’s stapled unit. The fair value is adjusted for changes in the market price of the Trust’s stapled unit and recorded as a liability in the employee unit-based compensation payables (note 9).
The fair value of the outstanding PSUs was $2.9 million at June 30, 2021 and is recorded as a liability in the employee unit-based compensation payables (note 9). The fair value is calculated using the Monte-Carlo simulation model based on the assumptions below as well as a market adjustment factor based on the total unitholder return of the Trust’s stapled units relative to the S&P/TSX Capped REIT Index.
Grant Date | January 1, 2021, January 1, 2020, January 1, August 12 and September 24, 2019 | |||
PSUs granted | 76,100 | |||
Term to expiry | 2.5 years | |||
Average volatility rate | 34.5% | |||
Weighted average risk free interest rate | 0.4% |
The Trust’s unit-based compensation expense recognized in general and administrative expenses was:
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||||||||||
DSUs for trustees/directors (1) | $ | 742 | $ | 1,147 | $ | 1,045 | $ | 630 | ||||||||||||
Restricted Stapled Unit Plan for executives and employees | 1,727 | 2,079 | 3,227 | 2,374 | ||||||||||||||||
Unit-based compensation expense | $ | 2,469 | $ | 3,226 | $ | 4,272 | $ | 3,004 | ||||||||||||
Fair value remeasurement expense included in the above: | ||||||||||||||||||||
● DSUs for trustees/directors | $ | 420 | $ | 853 | $ | 310 | $ | 116 | ||||||||||||
● Restricted Stapled Unit Plan for executives and employees | 624 | 1,021 | 621 | 259 | ||||||||||||||||
Total fair value remeasurement expense | $ | 1,044 | $ | 1,874 | $ | 931 | $ | 375 |
(1) | In respect of fees mandated and elected to be taken as DSUs. |
(b) | Normal Course Issuer Bid |
On May 19, 2021, Granite announced the acceptance by the Toronto Stock Exchange (“TSX”) of Granite’s Notice of Intention to Make a Normal Course Issuer Bid (“NCIB”). Pursuant to the NCIB, Granite proposes to purchase through the facilities of the TSX and any alternative trading system in Canada, from time to time and if considered advisable, up to an aggregate of 6,154,057 of Granite’s issued and outstanding stapled units. The NCIB commenced on May 21, 2021 and will conclude on the earlier of the date on which purchases under the bid have been completed and May 20, 2022. Pursuant to the policies of the TSX, daily purchases made by Granite through the TSX may not exceed 46,074 stapled units, subject to certain exceptions. Granite had entered into an automatic securities purchase plan with a broker in order to facilitate repurchases of the stapled units under the NCIB during specified blackout periods. Pursuant to a previous notice of intention to conduct a NCIB, Granite received approval from the TSX to purchase stapled units for the period May 21, 2020 to May 20, 2021.
72 Granite REIT 2021 Second Quarter Report
During the six month period ended June 30, 2021, there were no stapled unit repurchases under the NCIB. During the six month period ended June 30, 2020, Granite repurchased 490,952 stapled units at an average stapled unit cost of $50.95 for total consideration of $25.0 million. The difference between the repurchase price and the average cost of the stapled units of $1.3 million was recorded to contributed surplus.
(c) Stapled | Unit Offerings |
On June 9, 2021, Granite completed an offering of 3,979,000 stapled units at a price of $79.50 per unit for gross proceeds of $316.3 million, including 519,000 stapled units issued pursuant to the exercise of the over-allotment option granted to the underwriters. Total costs related to the offering totaled $13.2 million and were recorded as a reduction to stapled unitholders’ equity. The net proceeds received by Granite after deducting the total costs related to the offering were $303.1 million.
On June 2, 2020, Granite completed an offering of 4,255,000 stapled units at a price of $68.00 per unit for gross proceeds of $289.3 million, including 555,000 stapled units issued pursuant to the exercise of the over-allotment option granted to the underwriters. Total costs related to the offering totaled $12.4 million and were recorded as a reduction to stapled unitholders’ equity. The net proceeds received by Granite after deducting the total costs related to the offering were $276.9 million.
(d) Accumulated | Other Comprehensive Income |
Accumulated other comprehensive income consists of the following:
As at June 30, | 2021 | 2020 | ||||||
Foreign currency translation gains on investments in subsidiaries, net of related hedging activities and non-controlling interests(1) | $ | 30,599 | $ | 311,565 | ||||
Fair value losses on derivatives designated as net investment hedges | (5,316 | ) | (75,593 | ) | ||||
$ | 25,283 | $ | 235,972 |
(1) | Includes foreign currency translation gains and losses from non-derivative financial instruments designated as net investment hedges. |
12. RENTAL REVENUE, RECOVERIES, COSTS AND EXPENSES |
(a) | Rental revenue consists of: |
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||||||||
Base rent | $ | 79,924 | $ | 71,293 | $ | 160,217 | $ | 139,683 | ||||||||||
Straight-line rent amortization | 1,737 | 1,509 | 4,847 | 2,925 | ||||||||||||||
Tenant incentive amortization | (1,285 | ) | (1,311 | ) | (2,599 | ) | (2,586 | ) | ||||||||||
Property tax recoveries | 8,807 | 6,346 | 17,015 | 12,501 | ||||||||||||||
Property insurance recoveries | 751 | 620 | 1,505 | 1,199 | ||||||||||||||
Operating cost recoveries | 4,029 | 2,551 | 8,920 | 5,336 | ||||||||||||||
$ | 93,963 | $ | 81,008 | $ | 189,905 | $ | 159,058 |
Granite REIT 2021 Second Quarter Report 73
(b) Property operating costs consist of:
| ||||||||||||||||||
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||||||||
Non-recoverable from tenants: | ||||||||||||||||||
Property taxes and utilities | $ | 191 | $ | 213 | $ | 332 | $ | 470 | ||||||||||
Property insurance | 151 | 70 | 233 | 137 | ||||||||||||||
Repairs and maintenance | 78 | 183 | 141 | 328 | ||||||||||||||
Property management fees | 61 | 87 | 163 | 164 | ||||||||||||||
Professional fees | 70 | — | 148 | 75 | ||||||||||||||
Environmental and appraisals | 63 | 87 | 129 | 237 | ||||||||||||||
Other | 51 | (11 | ) | 127 | 22 | |||||||||||||
$ | 665 | $ | 629 | $ | 1,273 | $ | 1,433 | |||||||||||
Recoverable from tenants: | ||||||||||||||||||
Property taxes and utilities | $ | 9,647 | $ | 6,992 | $ | 18,835 | $ | 13,869 | ||||||||||
Property insurance | 1,076 | 720 | 1,982 | 1,396 | ||||||||||||||
Repairs and maintenance | 1,522 | 819 | 4,465 | 1,469 | ||||||||||||||
Property management fees | 677 | 603 | 1,355 | 1,230 | ||||||||||||||
Other | 47 | 80 | 120 | 614 | ||||||||||||||
$ | 12,969 | $ | 9,214 | $ | 26,757 | $ | 18,578 | |||||||||||
Property operating costs | $ | 13,634 | $ | 9,843 | $ | 28,030 | $ | 20,011 |
(c) | General and administrative expenses consist of: |
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||||||||
Salaries, incentives and benefits | $ | 3,601 | $ | 3,234 | $ | 8,577 | $ | 7,044 | ||||||||||
Audit, legal and consulting | 848 | 938 | 1,625 | 1,790 | ||||||||||||||
Trustee/director fees including distributions, revaluations and expenses(1) | 782 | 1,194 | 1,125 | 740 | ||||||||||||||
RSU and PSU compensation expense including distributions and revaluations(1) | 1,727 | 2,079 | 3,227 | 2,374 | ||||||||||||||
Other public entity costs | 658 | 562 | 1,082 | 936 | ||||||||||||||
Office rents including property taxes and common area maintenance costs | 84 | 99 | 202 | 198 | ||||||||||||||
Capital tax | 144 | 257 | 292 | 340 | ||||||||||||||
Information technology costs | 466 | 257 | 902 | 514 | ||||||||||||||
Other | 216 | 384 | 326 | 795 | ||||||||||||||
$ | 8,526 | $ | 9,004 | $ | 17,358 | $ | 14,731 | |||||||||||
Less: capitalized general and administrative expenses | (193 | ) | (18 | ) | (204 | ) | (18) | |||||||||||
$ | 8,333 | $ | 8,986 | $ | 17,154 | $ | 14,713 |
(1) | For fair value remeasurement expense amounts see note 11(a). |
During the three and six month periods ended June 30, 2021, Granite incurred less than $0.1 million of general and administrative expenses relating to COVID-19 (2020 — $0.1 million).
74 Granite REIT 2021 Second Quarter Report
(d) | Interest expense and other financing costs consist of: |
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||||||||
Interest and amortized issuance costs and modification losses relating to debentures and term loans | $ | 8,438 | $ | 7,090 | $ | 17,780 | $ | 12,879 | ||||||||||
Early redemption premium relating to 2021 Debentures (note 7(a)) | — | — | 3,963 | — | ||||||||||||||
Amortization of deferred financing costs and other interest expense and charges (note 6) | 890 | 532 | 1,980 | 1,119 | ||||||||||||||
Interest expense related to lease obligations (note 8) | 338 | 400 | 796 | 793 | ||||||||||||||
$ | 9,666 | $ | 8,022 | $ | 24,519 | $ | 14,791 | |||||||||||
Less: capitalized interest | (63 | ) | (259 | ) | (122 | ) | (383 | ) | ||||||||||
$ | 9,603 | $ | 7,763 | $ | 24,397 | $ | 14,408 |
(e) | Fair value losses (gains) on financial instruments, net, consist of: |
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||||||||
Foreign exchange forward contracts, net (note 15(a)) | $ | — | $ | 395 | $ | — | $ | 11 | ||||||||||
Foreign exchange collar contracts, net (note 15(a)) | 807 | (1,377 | ) | 742 | (1,377 | ) | ||||||||||||
Cross currency interest rate swaps (note 7(b)) | (658 | ) | 4,873 | (254 | ) | 7,151 | ||||||||||||
$ | 149 | $ | 3,891 | $ | 488 | $ | 5,785 |
For the three month period ended June 30, 2021, the fair value gain of $0.6 million is associated with the fair value movement of the 2024 Cross Currency Interest Rate Swap. For the six month period ended June 30, 2021, the net fair value gain of $0.2 million is associated with the fair value movements of the 2021 Cross Currency Interest Rate Swap and 2024 Cross Currency Interest Rate Swap. The Trust did not employ or partially employed hedge accounting for the derivatives and therefore the change in fair value is recognized in fair value losses on financial instruments, net, in the condensed combined statements of net income (note 7(b)).
For the three and six month periods ended June 30, 2020, the fair value losses of $4.9 million and $7.2 million, respectively, were associated with the fair value movement of the 2024 Cross Currency Interest Rate Swap. The Trust did not employ or partially employed hedge accounting for the derivative and therefore the change in fair value was recognized in fair value losses on financial instruments, net, in the condensed combined statements of net income.
Granite REIT 2021 Second Quarter Report 75
13. INCOME TAXES |
(a) | The major components of the income tax expense are: |
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||||||||
Current income tax expense | $ | 4,301 | $ | 2,099 | $ | 6,303 | $ | 3,376 | ||||||||||
Deferred income tax expense | 49,840 | 7,450 | 85,718 | 17,761 | ||||||||||||||
Income tax expense | $ | 54,141 | $ | 9,549 | $ | 92,021 | $ | 21,137 |
(b) The effective income tax rate reported in the condensed combined statements of net income varies from the Canadian statutory rate for the following reasons:
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||||||||
Income before income taxes | $ | 371,115 | $ | 85,191 | $ | 639,271 | $ | 178,191 | ||||||||||
Expected income taxes at the Canadian statutory tax rate of 26.5% (2020 — 26.5%) | $ | 98,346 | $ | 22,576 | $ | 169,407 | $ | 47,221 | ||||||||||
Income distributed and taxable to unitholders | (36,564 | ) | (12,954 | ) | (66,053 | ) | (25,314 | ) | ||||||||||
Net foreign rate differentials | (6,775 | ) | (1,095 | ) | (10,636 | ) | (3,449 | ) | ||||||||||
Net change in provisions for uncertain tax positions | 287 | 423 | 450 | 23 | ||||||||||||||
Net permanent differences | (48 | ) | (88 | ) | 10 | (49 | ) | |||||||||||
Net effect of change in tax rates | (1,044 | ) | — | (1,044 | ) | — | ||||||||||||
Withholding taxes and other | (61 | ) | 687 | (113 | ) | 2,705 | ||||||||||||
Income tax expense | $ | 54,141 | $ | 9,549 | $ | 92,021 | $ | 21,137 |
76 Granite REIT 2021 Second Quarter Report
14. DETAILS OF CASH FLOWS |
(a) | Items not involving operating cash flows are shown in the following table: |
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||||||||
Straight-line rent amortization | $ | (1,737 | ) | $ | (1,509 | ) | $ | (4,847 | ) | $ | (2,925 | ) | ||||||
Tenant incentive amortization | 1,285 | 1,311 | 2,599 | 2,586 | ||||||||||||||
Unit-based compensation expense (note 11(a)) | 2,469 | 3,226 | 4,272 | 3,004 | ||||||||||||||
Fair value gains on investment properties | (308,025 | ) | (34,548 | ) | (517,541 | ) | (70,541 | ) | ||||||||||
Depreciation and amortization | 360 | 271 | 691 | 508 | ||||||||||||||
Fair value losses on financial instruments, net (note 12(e)) | 149 | 3,891 | 488 | 5,785 | ||||||||||||||
Loss on sale of investment properties | 421 | — | 576 | — | ||||||||||||||
Amortization of issuance costs and modification losses relating to debentures and term loans | 311 | 221 | 739 | 411 | ||||||||||||||
Amortization of deferred financing costs | 143 | 78 | 742 | 156 | ||||||||||||||
Deferred income taxes (note 13(a)) | 49,840 | 7,450 | 85,718 | 17,761 | ||||||||||||||
Early redemption premium (note 7(a)) | — | — | 3,963 | — | ||||||||||||||
Other | (2 | ) | (24 | ) | (85 | ) | (75 | ) | ||||||||||
$ | (254,786 | ) | $ | (19,633 | ) | $ | (422,685 | ) | $ | (43,330 | ) |
(b) | Changes in working capital balances are shown in the following table: |
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||||||||
Accounts receivable | $ | 2,052 | $ | (1,093 | ) | $ | (1,024 | ) | $ | 1,384 | ||||||||
Prepaid expenses and other | 1,028 | 1,285 | (302 | ) | (49 | ) | ||||||||||||
Accounts payable and accrued liabilities | (4,177 | ) | 5,565 | (4,431 | ) | (1,112 | ) | |||||||||||
Deferred revenue | (574 | ) | 1,283 | 692 | 1,405 | |||||||||||||
$ | (1,671 | ) | $ | 7,040 | $ | (5,065 | ) | $ | 1,628 |
(c) | Non-cash investing and financing activities |
During the six month period ended June 30, 2021, 17 thousand stapled units (2020 — 22 thousand stapled units) with a value of $1.3 million (2020 — $1.3 million) were issued under the Restricted Stapled Unit Plan (note 11(a)) and are not recorded in the condensed combined statements of cash flows.
(d) | Cash and cash equivalents consist of: |
As at | June 30, 2021 | December 31, 2020 | ||||||
Cash | $ | 577,620 | $ | 780,979 | ||||
Short-term deposits | 100,522 | 50,301 | ||||||
$ | 678,142 | $ | 831,280 |
Granite REIT 2021 Second Quarter Report 77
15. FAIR VALUE AND RISK MANAGEMENT |
(a) | Fair Value of Financial Instruments |
The following table provides the measurement basis of financial assets and liabilities as at June 30, 2021 and December 31, 2020:
As at | June 30, 2021 | December 31, 2020 | ||||||||||||||
Carrying Value | Fair Value | Carrying Value | Fair Value | |||||||||||||
Financial assets | ||||||||||||||||
Construction funds in escrow | $ | 8,144 | $ | 8,144 | $ | 8,402 | $ | 8,402 | ||||||||
Other assets | 321 | (1) | 321 | 349 | (1) | 349 | ||||||||||
Cross currency interest rate swap | 48,816 | 48,816 | 28,676 | 28,676 | ||||||||||||
Accounts receivable | 6,835 | 6,835 | 6,746 | 6,746 | ||||||||||||
Prepaid expenses and other | 1,885 | (2) | 1,885 | 2,627 | (2) | 2,627 | ||||||||||
Cash and cash equivalents | 678,142 | 678,142 | 831,280 | 831,280 | ||||||||||||
$ | 744,143 | $ | 744,143 | $ | 878,080 | $ | 878,080 | |||||||||
Financial liabilities | ||||||||||||||||
Unsecured debentures, net | $ | 1,393,812 | $ | 1,435,530 | $ | 1,643,175 | (3) | $ | 1,737,185 | |||||||
Unsecured term loans, net | 528,586 | 528,586 | 534,947 | 534,947 | ||||||||||||
Cross currency interest rate swaps | 29,471 | 29,471 | 114,264 | (4) | 114,264 | |||||||||||
Accounts payable and accrued liabilities | 56,249 | 56,249 | 61,197 | 61,197 | ||||||||||||
Distributions payable | 16,421 | 16,421 | 15,422 | 15,422 | ||||||||||||
$ | 2,024,539 | $ | 2,066,257 | $ | 2,369,005 | $ | 2,463,015 |
(1) | Long-term receivables included in other assets (note 6). |
(2) | Foreign exchange collars included in prepaid expenses. |
(3) | Balance includes current and non-current portions (note 7(a)). |
(4) | Balance includes current and non-current portions (note 7(b)). |
The fair values of the Trust’s construction funds in escrow, accounts receivable, cash and cash equivalents, accounts payable and accrued liabilities and distributions payable approximate their carrying amounts due to the relatively short periods to maturity of these financial instruments. The fair value of the long-term receivable included in other assets approximates its carrying amount as the receivable bears interest at rates comparable to current market rates. The fair values of the unsecured debentures are determined using quoted market prices. The fair values of the term loans approximate their carrying amounts as the term loans bear interest at rates comparable to the current market rates. The fair values of the cross currency interest rate swaps and foreign exchange collars are determined using market inputs quoted by their counterparties. The fair value of the foreign exchange forward contracts approximate their carrying values as the asset or liability is revalued at the reporting date.
The Trust periodically purchases foreign exchange collars and forward contracts to hedge specific anticipated foreign currency transactions and to mitigate its foreign exchange exposure on its net cash flows. At June 30, 2021 and December 31, 2020, the Trust did not have any outstanding foreign exchange forward contracts. For the three and six month periods ended June 30, 2020, the Trust recorded a net fair value loss of $0.4 million and less than $0.1 million, respectively, related to outstanding foreign exchange forward contracts (note 12(e)). At June 30, 2021, the Trust held six outstanding foreign exchange collar contracts (December 31, 2020 — 12) with a
78 Granite REIT 2021 Second Quarter Report
notional value of US$30.0 million (December 31, 2020 — US$60.0 million) and contracts the Trust to sell US dollars and receive Canadian dollars if specific US dollar exchange rates relative to the Canadian dollar are met. The Trust also held six outstanding foreign exchange collar contracts (December 31, 2020 — 12) with a notional value of €12.0 million (December 31, 2020 — €24.0 million) and contracts the Trust to sell Euros and receive Canadian dollars if specific Euro exchange rates relative to the Canadian dollar are met. For the three and six month periods ended June 30, 2021, the Trust recorded a net fair value loss of $0.8 million (2020 — net fair value gain of $1.4 million) and $0.7 million (2020 — net fair value gain of $1.4 million), respectively, related to the outstanding foreign exchange collar contracts (note 12(e)). The Trust did not employ hedge accounting for these financial instruments.
(b) | Fair Value Hierarchy |
Fair value measurements are based on inputs of observable and unobservable market data that a market participant would use in pricing an asset or liability. IFRS establishes a fair value hierarchy which is summarized below:
Level 1: | Fair value determined using quoted prices in active markets for identical assets or liabilities. |
Level 2: | Fair value determined using significant observable inputs, generally either quoted prices in active markets for similar assets or liabilities or quoted prices in markets that are not active. |
Level 3: | Fair value determined using significant unobservable inputs, such as pricing models, discounted cash flows or similar techniques. |
Granite REIT 2021 Second Quarter Report 79
The following tables represent information related to the Trust’s assets and liabilities measured or disclosed at fair value on a recurring and non-recurring basis and the level within the fair value hierarchy in which the fair value measurements fall.
As at June 30, 2021 | Level 1 | Level 2 | Level 3 | |||||||||
ASSETS AND LIABILITIES MEASURED OR DISCLOSED AT FAIR VALUE | ||||||||||||
Assets measured at fair value | ||||||||||||
Investment properties (note 4) | $ | — | $ | — | $ | 6,396,560 | ||||||
Cross currency interest rate swap (note 7) | — | 48,816 | — | |||||||||
Foreign exchange collars included in prepaid expenses and other | — | 1,885 | — | |||||||||
Liabilities measured or disclosed at fair value | ||||||||||||
Unsecured debentures, net (note 7) | 1,435,530 | — | — | |||||||||
Unsecured term loans, net (note 7) | — | 528,586 | — | |||||||||
Cross currency interest rate swaps (note 7) | — | 29,471 | — | |||||||||
Net (liabilities) assets measured or disclosed at fair value | $ | (1,435,530 | ) | $ | (507,356 | ) | $ | 6,396,560 |
As at December 31, 2020 | Level 1 | Level 2 | Level 3 | |||||||||
ASSETS AND LIABILITIES MEASURED OR DISCLOSED AT FAIR VALUE | ||||||||||||
Assets measured at fair value | ||||||||||||
Investment properties (note 4) | $ | — | $ | — | $ | 5,855,583 | ||||||
Cross currency interest rate swap (note 7) | — | 28,676 | — | |||||||||
Foreign exchange collars included in prepaid expenses and other | — | 2,627 | — | |||||||||
Liabilities measured or disclosed at fair value | ||||||||||||
Unsecured debentures, net (note 7) | 1,737,185 | — | — | |||||||||
Unsecured term loans, net (note 7) | — | 534,947 | — | |||||||||
Cross currency interest rate swaps (note 7) | — | 114,264 | — | |||||||||
Net (liabilities) assets measured or disclosed at fair value | $ | (1,737,185 | ) | $ | (617,908 | ) | $ | 5,855,583 |
For assets and liabilities that are measured at fair value on a recurring basis, the Trust determines whether transfers between the levels of the fair value hierarchy have occurred by reassessing categorization (based on the lowest level input that is significant to the fair value measurement as a whole) at the end of each reporting period. For the three and six month periods ended June 30, 2021 and the year ended December 31, 2020, there were no transfers between the levels.
(c) | Risk Management |
Foreign exchange risk
As at June 30, 2021, the Trust is exposed to foreign exchange risk primarily in respect of movements in the Euro and the US dollar. The Trust is structured such that its foreign operations are primarily conducted by entities with a functional currency which is the same as the economic environment in which the operations take place. As a result, the net income impact of currency risk associated with financial instruments is limited as its financial assets and liabilities are
80 Granite REIT 2021 Second Quarter Report
generally denominated in the functional currency of the subsidiary that holds the financial instrument. However, the Trust is exposed to foreign currency risk on its net investment in its foreign currency denominated operations and certain Trust level foreign currency denominated assets and liabilities. At June 30, 2021, the Trust’s foreign currency denominated net assets are $4.9 billion primarily in US dollars and Euros. A 1% change in the US dollar and Euro exchange rates relative to the Canadian dollar would result in a gain or loss of approximately $32.5 million and $16.1 million, respectively, to comprehensive income.
16. COMBINED FINANCIAL INFORMATION |
The condensed combined financial statements include the financial position and results of operations and cash flows of each of Granite REIT and Granite GP. Below is a summary of the financial information for each entity along with the elimination entries and other adjustments that aggregate to the condensed combined financial statements:
Balance Sheet | As at June 30, 2021 | |||||||||||||||
Granite REIT | Granite GP | Eliminations/ Adjustments | Granite REIT and Granite GP Combined | |||||||||||||
ASSETS | ||||||||||||||||
Non-current assets: | ||||||||||||||||
Investment properties | $ | 6,396,560 | $ | 6,396,560 | ||||||||||||
Investment in Granite LP(1) | — | 30 | (30 | ) | — | |||||||||||
Other non-current assets | 66,286 | 66,286 | ||||||||||||||
6,462,846 | 30 | (30 | ) | 6,462,846 | ||||||||||||
Current assets: | ||||||||||||||||
Other current assets | 20,795 | 25 | 20,820 | |||||||||||||
Intercompany receivable(2) | — | 14,092 | (14,092 | ) | — | |||||||||||
Cash and cash equivalents | 677,888 | 254 | 678,142 | |||||||||||||
Total assets | $ | 7,161,529 | 14,401 | (14,122 | ) | $ | 7,161,808 | |||||||||
LIABILITIES AND EQUITY | ||||||||||||||||
Non-current liabilities: | ||||||||||||||||
Unsecured debt, net | $ | 1,922,398 | $ | 1,922,398 | ||||||||||||
Other non-current liabilities | 522,039 | 522,039 | ||||||||||||||
2,444,437 | 2,444,437 | |||||||||||||||
Current liabilities: | ||||||||||||||||
Intercompany payable (2) | 14,092 | (14,092 | ) | — | ||||||||||||
Other current liabilities | 93,432 | 14,371 | 107,803 | |||||||||||||
Total liabilities | 2,551,961 | 14,371 | (14,092 | ) | 2,552,240 | |||||||||||
Equity: | ||||||||||||||||
Stapled unitholders’ equity | 4,607,370 | 30 | 4,607,400 | |||||||||||||
Non-controlling interests | 2,198 | (30 | ) | 2,168 | ||||||||||||
Total liabilities and equity | $ | 7,161,529 | 14,401 | (14,122 | ) | $ | 7,161,808 |
(1) | Granite REIT Holdings Limited Partnership (“Granite LP”) is 100% owned by Granite REIT and Granite GP. |
(2) | Represents employee and trustee/director compensation related amounts which will be reimbursed by Granite LP. |
Granite REIT 2021 Second Quarter Report 81
Balance Sheet | As at December 31, 2020 | |||||||||||||||
Granite REIT | Granite GP | Eliminations/ Adjustments | Granite REIT and Granite GP Combined | |||||||||||||
ASSETS | ||||||||||||||||
Non-current assets: | ||||||||||||||||
Investment properties | $ | 5,855,583 | $ | 5,855,583 | ||||||||||||
Investment in Granite LP(1) | — | 25 | (25 | ) | — | |||||||||||
Other non-current assets | 46,046 | 46,046 | ||||||||||||||
5,901,629 | 25 | (25 | ) | 5,901,629 | ||||||||||||
Current assets: | ||||||||||||||||
Other current assets | 14,546 | 17 | 14,563 | |||||||||||||
Intercompany receivable(2) | — | 13,792 | (13,792 | ) | — | |||||||||||
Cash and cash equivalents | 830,455 | 825 | 831,280 | |||||||||||||
Total assets | $ | 6,746,630 | 14,659 | (13,817 | ) | $ | 6,747,472 | |||||||||
LIABILITIES AND EQUITY |
| |||||||||||||||
Non-current liabilities: | ||||||||||||||||
Unsecured debt, net | $ | 1,928,252 | $ | 1,928,252 | ||||||||||||
Other non-current liabilities | 523,096 | 523,096 | ||||||||||||||
2,451,348 | 2,451,348 | |||||||||||||||
Current liabilities: | ||||||||||||||||
Unsecured debt, net | 249,870 | 249,870 | ||||||||||||||
Intercompany payable(2) | 13,792 | (13,792 | ) | — | ||||||||||||
Other current liabilities | 109,416 | 14,634 | 124,050 | |||||||||||||
Total liabilities | 2,824,426 | 14,634 | (13,792 | ) | 2,825,268 | |||||||||||
Equity: | ||||||||||||||||
Stapled unitholders’ equity | 3,920,044 | 25 | 3,920,069 | |||||||||||||
Non-controlling interests | 2,160 | (25 | ) | 2,135 | ||||||||||||
Total liabilities and equity | $ | 6,746,630 | 14,659 | (13,817 | ) | $ | 6,747,472 |
(1) | Granite LP is 100% owned by Granite REIT and Granite GP. |
(2) | Represents employee and trustee/director compensation related amounts which will be reimbursed by Granite LP. |
82 Granite REIT 2021 Second Quarter Report
Income Statement | Three Months Ended June 30, 2021 | |||||||||||||||
Granite REIT | Granite GP | Eliminations/ Adjustments | Granite REIT and Granite GP Combined | |||||||||||||
Revenue | $ | 93,963 | $ | 93,963 | ||||||||||||
General and administrative expenses | 8,333 | 8,333 | ||||||||||||||
Interest expense and other financing costs, net | 9,603 | 9,603 | ||||||||||||||
Other costs and expenses, net | 12,367 | 12,367 | ||||||||||||||
Share of (income) loss of Granite LP | — | (3 | ) | 3 | — | |||||||||||
Fair value gains on investment properties, net | (308,025 | ) | (308,025 | ) | ||||||||||||
Fair value losses on financial instruments, net | 149 | 149 | ||||||||||||||
Loss on sale of investment properties | 421 | 421 | ||||||||||||||
Income before income taxes | 371,115 | 3 | (3 | ) | 371,115 | |||||||||||
Income tax expense | 54,141 | 54,141 | ||||||||||||||
Net income | 316,974 | 3 | (3 | ) | 316,974 | |||||||||||
Less net income attributable to non-controlling interests | 66 | (3 | ) | 63 | ||||||||||||
Net income attributable to stapled unitholders | $ | 316,908 | 3 | — | $ | 316,911 |
Income Statement | Three Months Ended June 30, 2020 | |||||||||||||||
Granite REIT | Granite GP | Eliminations/ Adjustments | Granite REIT and Granite GP Combined | |||||||||||||
Revenue | $ | 81,008 | $ | 81,008 | ||||||||||||
General and administrative expenses | 8,986 | 8,986 | ||||||||||||||
Interest expense and other financing costs, net | 7,763 | 7,763 | ||||||||||||||
Other costs and expenses, net | 9,725 | 9,725 | ||||||||||||||
Share of (income) loss of Granite LP | — | (1 | ) | 1 | — | |||||||||||
Fair value gains on investment properties, net | (34,548 | ) | (34,548 | ) | ||||||||||||
Fair value losses on financial instruments, net | 3,891 | 3,891 | ||||||||||||||
Income before income taxes | 85,191 | 1 | (1 | ) | 85,191 | |||||||||||
Income tax expense | 9,549 | 9,549 | ||||||||||||||
Net income | 75,642 | 1 | (1 | ) | 75,642 | |||||||||||
Less net loss attributable to non-controlling interests | (14 | ) | (1 | ) | (15 | ) | ||||||||||
Net income attributable to stapled unitholders | $ | 75,656 | 1 | — | $ | 75,657 |
Granite REIT 2021 Second Quarter Report 83
Income Statement | Six Months Ended June 30, 2021 | |||||||||||||||
Granite REIT | Granite GP | Eliminations/ Adjustments | Granite REIT and Granite GP Combined | |||||||||||||
Revenue | $ | 189,905 | $ | 189,905 | ||||||||||||
General and administrative expenses | 17,154 | 17,154 | ||||||||||||||
Interest expense and other financing costs | 24,397 | 24,397 | ||||||||||||||
Other costs and expenses, net | 25,560 | 25,560 | ||||||||||||||
Share of (income) loss of Granite LP | — | (5 | ) | 5 | — | |||||||||||
Fair value gains on investment properties, net | (517,541 | ) | (517,541 | ) | ||||||||||||
Fair value losses on financial instruments, net | 488 | 488 | ||||||||||||||
Loss on sale of investment properties | 576 | 576 | ||||||||||||||
Income before income taxes | 639,271 | 5 | (5 | ) | 639,271 | |||||||||||
Income tax expense | 92,021 | 92,021 | ||||||||||||||
Net income | 547,250 | 5 | (5 | ) | 547,250 | |||||||||||
Less net income attributable to non-controlling interests | 211 | (5 | ) | 206 | ||||||||||||
Net income attributable to stapled unitholders | $ | 547,039 | 5 | — | $ | 547,044 |
Income Statement | Six Months Ended June 30, 2020 | |||||||||||||||
Granite REIT | Granite GP | Eliminations/ Adjustments | Granite REIT and Granite GP Combined | |||||||||||||
Revenue | $ | 159,058 | $ | 159,058 | ||||||||||||
General and administrative expenses | 14,713 | 14,713 | ||||||||||||||
Interest expense and other financing costs | 14,408 | 14,408 | ||||||||||||||
Other costs and expenses, net | 16,502 | 16,502 | ||||||||||||||
Share of (income) loss of Granite LP | — | (2 | ) | 2 | — | |||||||||||
Fair value gains on investment properties, net | (70,541 | ) | (70,541 | ) | ||||||||||||
Fair value losses on financial instruments, net | 5,785 | 5,785 | ||||||||||||||
Income before income taxes | 178,191 | 2 | (2 | ) | 178,191 | |||||||||||
Income tax expense | 21,137 | 21,137 | ||||||||||||||
Net income | 157,054 | 2 | (2 | ) | 157,054 | |||||||||||
Less net income attributable to non-controlling interests | 103 | (2 | ) | 101 | ||||||||||||
Net income attributable to stapled unitholders | $ | 156,951 | 2 | — | $ | 156,953 |
84 Granite REIT 2021 Second Quarter Report
Statement of Cash Flows | Three Months Ended June 30, 2021 | |||||||||||||||
Granite REIT | Granite GP | Eliminations/ Adjustments | Granite REIT and Granite GP Combined | |||||||||||||
OPERATING ACTIVITIES | ||||||||||||||||
Net income | $ | 316,974 | 3 | (3 | ) | $ | 316,974 | |||||||||
Items not involving current cash flows | (254,786 | ) | (3 | ) | 3 | (254,786 | ) | |||||||||
Changes in working capital balances | (795 | ) | (876 | ) | (1,671 | ) | ||||||||||
Other operating activities | 4,218 | 4,218 | ||||||||||||||
Cash provided by (used in) operating activities | 65,611 | (876 | ) | — | 64,735 | |||||||||||
INVESTING ACTIVITIES | ||||||||||||||||
Property acquisitions | (133,376 | ) | (133,376 | ) | ||||||||||||
Proceeds from disposals, net | 12,809 | 12,809 | ||||||||||||||
Additions to income-producing properties | (783 | ) | (783 | ) | ||||||||||||
Additions to properties under development | (4,865 | ) | (4,865 | ) | ||||||||||||
Other investing activities | (1,907 | ) | (1,907 | ) | ||||||||||||
Cash used in investing activities | (128,122 | ) | — | — | (128,122 | ) | ||||||||||
FINANCING ACTIVITIES | ||||||||||||||||
Distributions paid | (46,288 | ) | (46,288 | ) | ||||||||||||
Other financing activities | 302,811 | 302,811 | ||||||||||||||
Cash provided by financing activities | 256,523 | — | — | 256,523 | ||||||||||||
Effect of exchange rate changes | 4,295 | 4,295 | ||||||||||||||
Net increase (decrease) in cash and cash equivalents during the period | $ | 198,307 | (876 | ) | — | $ | 197,431 |
Statement of Cash Flows | Three Months Ended June 30, 2020 | |||||||||||||||
Granite REIT | Granite GP | Eliminations/ Adjustments | Granite REIT and Granite GP Combined | |||||||||||||
OPERATING ACTIVITIES | ||||||||||||||||
Net income | $ | 75,642 | 1 | (1 | ) | $ | 75,642 | |||||||||
Items not involving current cash flows | (19,633 | ) | (1 | ) | 1 | (19,633 | ) | |||||||||
Changes in working capital balances | 7,084 | (44 | ) | — | 7,040 | |||||||||||
Other operating activities | 2,120 | 2,120 | ||||||||||||||
Cash provided by (used in) operating activities | 65,213 | (44 | ) | — | 65,169 | |||||||||||
INVESTING ACTIVITIES | ||||||||||||||||
Property acquisitions | (331,805 | ) | (331,805 | ) | ||||||||||||
Additions to income-producing properties | (1,083 | ) | (1,083 | ) | ||||||||||||
Additions to properties under development | (26,122 | ) | (26,122 | ) | ||||||||||||
Construction funds released from escrow | 4,291 | 4,291 | ||||||||||||||
Other investing activities | (72,606 | ) | (72,606 | ) | ||||||||||||
Cash used in investing activities | (427,325 | ) | — | — | (427,325 | ) | ||||||||||
FINANCING ACTIVITIES | ||||||||||||||||
Distributions paid | (38,890 | ) | (38,890 | ) | ||||||||||||
Other financing activities | 774,909 | 774,909 | ||||||||||||||
Cash provided by financing activities | 736,019 | — | — | 736,019 | ||||||||||||
Effect of exchange rate changes | 1,313 | 1,313 | ||||||||||||||
Net increase (decrease) in cash and cash equivalents during the period | $ | 375,220 | (44 | ) | — | $ | 375,176 |
Granite REIT 2021 Second Quarter Report 85
Statement of Cash Flows | Six Months Ended June 30, 2021 | |||||||||||||||
Granite REIT | Granite GP | Eliminations/ Adjustments | Granite REIT and Granite GP Combined | |||||||||||||
OPERATING ACTIVITIES | ||||||||||||||||
Net income | $ | 547,250 | 5 | (5 | ) | $ | 547,250 | |||||||||
Items not involving operating cash flows | (422,685 | ) | (5 | ) | 5 | (422,685 | ) | |||||||||
Changes in working capital balances | (4,494 | ) | (571 | ) | (5,065 | ) | ||||||||||
Other operating activities | 9,540 | 9,540 | ||||||||||||||
Cash provided by (used in) operating activities | 129,611 | (571 | ) | — | 129,040 | |||||||||||
INVESTING ACTIVITIES | ||||||||||||||||
Property acquisitions | (219,289 | ) | (219,289 | ) | ||||||||||||
Proceeds from disposals, net | 23,204 | 23,204 | ||||||||||||||
Additions to income-producing properties | (783 | ) | (783 | ) | ||||||||||||
Additions to properties under development | (17,286 | ) | (17,286 | ) | ||||||||||||
Construction funds released from escrow | 28 | 28 | ||||||||||||||
Other investing activities | (2,578 | ) | (2,578 | ) | ||||||||||||
Cash used in investing activities | (216,704 | ) | — | — | (216,704 | ) | ||||||||||
FINANCING ACTIVITIES | ||||||||||||||||
Distributions paid | (92,551 | ) | (92,551 | ) | ||||||||||||
Other financing activities | 26,965 | 26,965 | ||||||||||||||
Cash used in financing activities | (65,586 | ) | — | — | (65,586 | ) | ||||||||||
Effect of exchange rate changes | 112 | 112 | ||||||||||||||
Net decrease in cash and cash equivalents during the period | $ | (152,567 | ) | (571 | ) | — | $ | (153,138 | ) |
Statement of Cash Flows | Six Months Ended June 30, 2020 | |||||||||||||||
Granite REIT | Granite GP | Eliminations/ Adjustments | Granite REIT and Granite GP Combined | |||||||||||||
OPERATING ACTIVITIES | ||||||||||||||||
Net income | $ | 157,054 | 2 | (2 | ) | $ | 157,054 | |||||||||
Items not involving operating cash flows | (43,330 | ) | (2 | ) | 2 | (43,330 | ) | |||||||||
Changes in working capital balances | 1,814 | (186 | ) | 1,628 | ||||||||||||
Other operating activities | 4,679 | 4,679 | ||||||||||||||
Cash provided by (used in) operating activities | 120,217 | (186 | ) | — | 120,031 | |||||||||||
INVESTING ACTIVITIES | ||||||||||||||||
Property acquisitions | (360,754 | ) | (360,754 | ) | ||||||||||||
Additions to income-producing properties | (3,318 | ) | (3,318 | ) | ||||||||||||
Additions to properties under development | (32,194 | ) | (32,194 | ) | ||||||||||||
Construction funds released from escrow | 6,591 | 6,591 | ||||||||||||||
Other investing activities | (90,854 | ) | (90,854 | ) | ||||||||||||
Cash used in investing activities | (480,529 | ) | — | — | (480,529 | ) | ||||||||||
FINANCING ACTIVITIES | ||||||||||||||||
Distributions paid | (78,140 | ) | (78,140 | ) | ||||||||||||
Other financing activities | 749,784 | 749,784 | ||||||||||||||
Cash provided by financing activities | 671,644 | — | — | 671,644 | ||||||||||||
Effect of exchange rate changes | 7,425 | 7,425 | ||||||||||||||
Net increase (decrease) in cash and cash equivalents during the period | $ | 318,757 | (186 | ) | — | $ | 318,571 |
86 Granite REIT 2021 Second Quarter Report
17. COMMITMENTS AND CONTINGENCIES |
(a) The Trust is subject to various legal proceedings and claims that arise in the ordinary course of business. Management evaluates all claims with the advice of legal counsel. Management believes these claims are generally covered by Granite’s insurance policies and that any liability from remaining claims is not probable to occur and would not have a material adverse effect on the condensed combined financial statements. However, actual outcomes may differ from management’s expectations.
(b) As at June 30, 2021, the Trust’s contractual commitments totaled $182.1 million which comprised of construction and development projects of $117.4 million, the construction costs associated with a property under development in Murfreesboro, Tennessee of $64.7 million (US$52.2 million) (note 3).
(c) In connection with the acquisitions of investment properties located in Palmetto, Georgia on November 12, 2020 and in Locust Grove, Georgia on March 12, 2021, $120.4 million (US$97.1 million) of bonds were assumed. The authorized amount of the bonds is $129.0 million (US$104.0 million), of which $120.4 million (US$97.1 million) was outstanding as at June 30, 2021. The bonds provide for a real estate tax abatement for the acquired investment properties. Through a series of transactions, the Trust is both the bondholder and the obligor of the bonds. Therefore, in accordance with IAS 32, the bonds are not recorded in the condensed combined balance sheet.
The Trust is involved, in the normal course of business, in discussions, and has various letters of intent or conditional agreements, with respect to possible acquisitions of new properties and dispositions of existing properties in its portfolio. None of these commitments or contingencies, individually or in aggregate, would have a material impact on the condensed combined financial statements.
18. SUBSEQUENT EVENTS |
(a) Subsequent to June 30, 2021, the Trust declared monthly distributions for July 2021 of $16.4 million (note 10).
Granite REIT 2021 Second Quarter Report 87