Exhibit 4.6
Condensed Combined Financial Statements
of Granite Real Estate Investment Trust
and Granite REIT Inc.
For the three and nine months ended September 30, 2023 and 2022
Condensed Combined Balance Sheets
(Canadian dollars in thousands)
(Unaudited)
As at | Note | September 30, 2023 | December 31, 2022 | |||||||||
ASSETS | ||||||||||||
Non-current assets: | ||||||||||||
Investment properties | 4 | $ | 8,898,540 | $ | 8,839,571 | |||||||
Acquisition deposits | – | 8,487 | ||||||||||
Deferred tax assets | 623 | 629 | ||||||||||
Fixed assets, net | 3,363 | 4,037 | ||||||||||
Derivatives | 8(c) | 128,366 | 151,855 | |||||||||
Other assets | 6 | 2,668 | 2,181 | |||||||||
9,033,560 | 9,006,760 | |||||||||||
Current assets: | ||||||||||||
Assets held for sale | 5 | – | 41,182 | |||||||||
Loan receivable | 7 | – | 69,186 | |||||||||
Accounts receivable | 10,618 | 12,176 | ||||||||||
Income taxes receivable | 907 | 1,288 | ||||||||||
Prepaid expenses and other | 12,436 | 14,681 | ||||||||||
Cash and cash equivalents | 16(d) | 158,307 | 135,081 | |||||||||
Total assets | $ | 9,215,828 | $ | 9,280,354 | ||||||||
LIABILITIES AND EQUITY | ||||||||||||
Non-current liabilities: | ||||||||||||
Unsecured debt, net | 8(a),8(b) | $ | 2,685,384 | $ | 2,583,930 | |||||||
Derivative | 8(c) | 8,139 | 6,391 | |||||||||
Long-term portion of lease obligations | 10 | 32,407 | 32,977 | |||||||||
Deferred tax liabilities | 538,284 | 557,391 | ||||||||||
3,264,214 | 3,180,689 | |||||||||||
Current liabilities: | ||||||||||||
Unsecured debt, net | 8(b) | 399,946 | 399,707 | |||||||||
Derivative | 8(c) | 1,094 | 7,076 | |||||||||
Secured debt | 9 | – | 51,373 | |||||||||
Deferred revenue | 11 | 18,094 | 17,358 | |||||||||
Accounts payable and accrued liabilities | 11 | 101,474 | 114,775 | |||||||||
Distributions payable | 12 | 16,992 | 16,991 | |||||||||
Short-term portion of lease obligations | 10 | 771 | 746 | |||||||||
Income taxes payable | 11,516 | 11,292 | ||||||||||
Total liabilities | 3,814,101 | 3,800,007 | ||||||||||
Equity: | ||||||||||||
Stapled unitholders’ equity | 13 | 5,395,531 | 5,475,375 | |||||||||
Non-controlling interests | 6,196 | 4,972 | ||||||||||
Total equity | 5,401,727 | 5,480,347 | ||||||||||
Total liabilities and equity | $ | 9,215,828 | $ | 9,280,354 |
Commitments and contingencies (note 19)
See accompanying notes
Granite REIT 2023 Third Quarter Report 71
Condensed Combined Statements of Net Income (Loss)
(Canadian dollars in thousands)
(Unaudited)
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||
Note | 2023 | 2022 | 2023 | 2022 | ||||||||||||||
Rental revenue | 14(a) | $ | 131,462 | $ | 111,605 | $ | 391,403 | $ 329,965 | ||||||||||
Property operating costs | 14(b) | 22,290 | 17,663 | 66,219 | 52,021 | |||||||||||||
Net operating income | 109,172 | 93,942 | 325,184 | 277,944 | ||||||||||||||
General and administrative expenses | 14(c) | 8,402 | 6,461 | 31,976 | 20,921 | |||||||||||||
Depreciation and amortization | 310 | 419 | 946 | 1,174 | ||||||||||||||
Interest income | (1,221 | ) | (119 | ) | (3,313 | ) | (520) | |||||||||||
Interest expense and other financing costs | 14(d) | 18,831 | 12,688 | 55,827 | 34,279 | |||||||||||||
Foreign exchange losses (gains), net | 153 | (634 | ) | 655 | (427) | |||||||||||||
Fair value losses (gains) on investment properties, net | 4,5 | 53,200 | 229,151 | 139,747 | (10,193) | |||||||||||||
Fair value losses (gains) on financial instruments, net | 14(e) | 2,520 | (1,367 | ) | 1,869 | (9,301) | ||||||||||||
Loss on sale of investment properties | 5 | 891 | – | 1,496 | 676 | |||||||||||||
Income (loss) before income taxes | 26,086 | (152,657 | ) | 95,981 | 241,335 | |||||||||||||
Income tax recovery | 15 | (8,071 | ) | (59,409 | ) | (10,513 | ) | (40,812) | ||||||||||
Net income (loss) | $ | 34,157 | $ | (93,248 | ) | $ | 106,494 | $ 282,147 | ||||||||||
Net income (loss) attributable to: | ||||||||||||||||||
Stapled unitholders | $ | 33,126 | $ | (93,261 | ) | $ | 105,344 | $ 282,110 | ||||||||||
Non-controlling interests | 1,031 | 13 | 1,150 | 37 | ||||||||||||||
$ | 34,157 | $ | (93,248 | ) | $ | 106,494 | $ 282,147 |
See accompanying notes
72 Granite REIT 2023 Third Quarter Report
Condensed Combined Statements of Comprehensive Income
(Canadian dollars in thousands)
(Unaudited)
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||
Note | 2023 | 2022 | 2023 | 2022 | ||||||||||||||||
Net income (loss) | $ | 34,157 | $ | (93,248 | ) | $ | 106,494 | $ 282,147 | ||||||||||||
Other comprehensive income (loss): | ||||||||||||||||||||
Foreign currency translation adjustment(1) | 81,773 | 295,943 | (18,576 | ) | 241,434 | |||||||||||||||
Unrealized (loss) gain on net investment hedges, including income taxes of nil(1) | 8(c) | (33,825 | ) | 1,654 | (16,721 | ) | 103,798 | |||||||||||||
Total other comprehensive income (loss) | 47,948 | 297,597 | (35,297 | ) | 345,232 | |||||||||||||||
Comprehensive income | $ | 82,105 | $ | 204,349 | $ | 71,197 | $ 627,379 | |||||||||||||
(1) Items that may be reclassified subsequently to net income (loss) if a foreign subsidiary is disposed of or hedges are terminated or no longer assessed as effective.
| ||||||||||||||||||||
Comprehensive income attributable to: |
| |||||||||||||||||||
Stapled unitholders | $ | 80,985 | $ | 204,173 | $ | 70,145 | $ 627,226 | |||||||||||||
Non-controlling interests | 1,120 | 176 | 1,052 | 153 | ||||||||||||||||
$ | 82,105 | $ | 204,349 | $ | 71,197 | $ 627,379 |
See accompanying notes
Granite REIT 2023 Third Quarter Report 73
Condensed Combined Statements of Unitholders’ Equity
(Canadian dollars in thousands)
(Unaudited)
Nine Months Ended September 30, 2023 | ||||||||||||||||||||||||||||||||
Number of units (000s) | Stapled units | Contributed surplus | Retained earnings | Accumulated other comprehensive income | Stapled unitholders’ equity | Non- controlling interests | Equity | |||||||||||||||||||||||||
As at January 1,2023 | 63,708 | $ | 3,347,822 | $ | 11,601 | $ | 1,702,420 | $ | 413,532 | $5,475,375 | $ | 4,972 | $ | 5,480,347 | ||||||||||||||||||
Net income | – | – | – | 105,344 | – | 105,344 | 1,150 | 106,494 | ||||||||||||||||||||||||
Other comprehensive loss | – | – | – | – | (35,199 | ) | (35,199 | ) | (98 | ) | (35,297 | ) | ||||||||||||||||||||
Distributions (note 12) | – | – | – | (152,984 | ) | – | (152,984 | ) | (31 | ) | (153,015 | ) | ||||||||||||||||||||
Contributions from non-controlling interests | – | – | – | – | – | – | 203 | 203 | ||||||||||||||||||||||||
Units issued under the stapled unit plan (note 13(a)) | 36 | 2,995 | – | – | – | 2,995 | – | 2,995 | ||||||||||||||||||||||||
As at September 30, 2023 | 63,744 | $ | 3,350,817 | $ | 11,601 | $ | 1,654,780 | $ | 378,333 | $5,395,531 | $ | 6,196 | $ | 5,401,727 | ||||||||||||||||||
Nine Months Ended September 30, 2022 | ||||||||||||||||||||||||||||||||
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, 2022 | 65,694 | $ | 3,444,418 | $ | 53,326 | $ | 1,748,958 | $ | 71,951 | $5,318,653 | $ | 2,881 | $ | 5,321,534 | ||||||||||||||||||
Net income | – | – | – | 282,110 | – | 282,110 | 37 | 282,147 | ||||||||||||||||||||||||
Other comprehensive income | – | – | – | – | 345,116 | 345,116 | 116 | 345,232 | ||||||||||||||||||||||||
Distributions (note 12) | – | – | – | (152,349 | ) | – | (152,349 | ) | (30 | ) | (152,379 | ) | ||||||||||||||||||||
Contributions from non-controlling interests | – | – | – | – | – | – | 2,837 | 2,837 | ||||||||||||||||||||||||
Disposition of non-controlling interests | – | – | – | – | – | – | (1,412 | ) | (1,412 | ) | ||||||||||||||||||||||
Units issued under the stapled unit plan (note 13(a)) | 41 | 3,881 | – | – | – | 3,881 | – | 3,881 | ||||||||||||||||||||||||
Stapled units issued, net of issuance costs (note 13(c)) | 136 | 13,115 | – | – | – | 13,115 | – | 13,115 | ||||||||||||||||||||||||
Units repurchased for cancellation (note 13(b)) | (1,144 | ) | (60,095 | ) | (26,330 | ) | – | – | (86,425 | ) | – | (86,425 | ) | |||||||||||||||||||
As at September 30, 2022 | 64,727 | $ | 3,401,319 | $ | 26,996 | $ | 1,878,719 | $ | 417,067 | $5,724,101 | $ | 4,429 | $ | 5,728,530 |
See accompanying notes
74 Granite REIT 2023 Third Quarter Report
Condensed Combined Statements of Cash Flows
(Canadian dollars in thousands)
(Unaudited)
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||
Note | 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||
OPERATING ACTIVITIES | ||||||||||||||||||||||
Net income (loss) | $ | 34,157 | $ | (93,248 | ) | $ | 106,494 | $ | 282,147 | |||||||||||||
Items not involving operating cash flows | 16(a) | 44,654 | 165,349 | 126,763 | (67,885 | ) | ||||||||||||||||
Current income tax expense | 15(a) | 2,184 | 1,874 | 6,641 | 5,813 | |||||||||||||||||
Income taxes paid | (1,447 | ) | (11,358 | ) | (6,281 | ) | (14,896 | ) | ||||||||||||||
Interest expense | 18,594 | 12,446 | 53,710 | 33,397 | ||||||||||||||||||
Interest paid | (12,511 | ) | (6,573 | ) | (47,670 | ) | (30,277 | ) | ||||||||||||||
Changes in working capital balances | 16(b) | (354 | ) | 9,784 | (2,519 | ) | 3,668 | |||||||||||||||
Cash provided by operating activities | 85,277 | 78,274 | 237,138 | 211,967 | ||||||||||||||||||
INVESTING ACTIVITIES | ||||||||||||||||||||||
Investment properties: | ||||||||||||||||||||||
Acquisitions, deposits and transactions costs, net | 3 | (137 | ) | (100,824 | ) | (103,388 | ) | (493,366 | ) | |||||||||||||
Working capital acquired on acquisition | – | 6,748 | – | 6,748 | ||||||||||||||||||
Proceeds from disposal, net | 5 | 19,684 | – | 43,782 | 63,933 | |||||||||||||||||
Leasing costs paid | (561 | ) | (2,829 | ) | (3,603 | ) | (5,513 | ) | ||||||||||||||
Tenant allowances paid | (482 | ) | (399 | ) | (2,142 | ) | (417 | ) | ||||||||||||||
Additions to income-producing properties | (10,922 | ) | (23,509 | ) | (60,586 | ) | (34,430 | ) | ||||||||||||||
Additions to properties under development | (14,794 | ) | (44,256 | ) | (57,919 | ) | (164,992 | ) | ||||||||||||||
Construction funds (in) released from escrow | (82 | ) | (896 | ) | 4,805 | (3,981 | ) | |||||||||||||||
Loan receivable (advances) repayment, net | 7 | – | (13,609 | ) | 69,262 | (42,865 | ) | |||||||||||||||
Fixed asset additions, net | (38 | ) | (234 | ) | (155 | ) | (793 | ) | ||||||||||||||
Cash used in investing activities | (7,332 | ) | (179,808 | ) | (109,944 | ) | (675,676 | ) | ||||||||||||||
FINANCING ACTIVITIES | ||||||||||||||||||||||
Monthly distributions paid | (51,002 | ) | (50,686 | ) | (152,983 | ) | (152,598 | ) | ||||||||||||||
Proceeds from unsecured term loan, net of financing costs | 8(b) | 102,117 | 527,486 | 102,117 | 527,486 | |||||||||||||||||
Proceeds from unsecured credit facility draws | – | 41,154 | 90,234 | 254,804 | ||||||||||||||||||
Repayment of unsecured credit facility draws | (91,254 | ) | (264,060 | ) | (91,254 | ) | (264,060 | ) | ||||||||||||||
Settlement of cross currency interest rate swap | 8(c) | – | – | – | (6,563 | ) | ||||||||||||||||
Proceeds from secured debt | 9 | – | 10,825 | 5,634 | 42,658 | |||||||||||||||||
Repayment of secured debt | 9 | – | – | (56,234 | ) | – | ||||||||||||||||
Repayment of lease obligations | 10 | (166 | ) | (173 | ) | (537 | ) | (587 | ) | |||||||||||||
Financing costs paid | – | – | (917 | ) | – | |||||||||||||||||
Distributions to non-controlling interests | – | – | (31 | ) | (30 | ) | ||||||||||||||||
Proceeds from stapled unit offerings, net of issuance costs | 13(c) | – | – | – | 13,115 | |||||||||||||||||
Repurchase of stapled units | 13(b) | – | (56,499 | ) | – | (86,425 | ) | |||||||||||||||
Cash (used in) provided by financing activities | (40,305 | ) | 208,047 | (103,971 | ) | 327,800 | ||||||||||||||||
Effect of exchange rate changes on cash and cash equivalents | 1,503 | 10,188 | 3 | 7,697 | ||||||||||||||||||
Net increase (decrease) in cash and cash equivalents during the period | 39,143 | 116,701 | 23,226 | (128,212 | ) | |||||||||||||||||
Cash and cash equivalents, beginning of period | 119,164 | 157,600 | 135,081 | 402,513 | ||||||||||||||||||
Cash and cash equivalents, end of period | $ | 158,307 | $ | 274,301 | $ | 158,307 | $ | 274,301 |
See accompanying notes
Granite REIT 2023 Third Quarter Report 75
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 as subsequently amended and restated on June 9, 2022. 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 1133 Melville Street, Suite 3500, The Stack, Vancouver, British Columbia, V6E 4E5, 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 November 8, 2023.
2. MATERIAL ACCOUNTING POLICY INFORMATION
|
(a) | Basis of Presentation and Statement of Compliance |
The condensed combined financial statements for the three and nine month periods ended September 30, 2023 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, 2022.
(b) | Combined Financial Statements and Basis of Consolidation |
76 Granite REIT 2023 Third Quarter Report
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 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, 2022. As a result of the adoption of the amendments to IAS 1, Presentation of Financial Statements, effective for annual periods beginning on or after January 1, 2023, there was no adjustment to the presentation or amounts recognized in the condensed combined financial statements.
(d) | Future Accounting Policy Changes |
As at September 30, 2023, there is no new accounting standard with a material effect issued but not yet applicable to the condensed combined financial statements.
3. ACQUISITIONS
|
During the nine month periods ended September 30, 2023 and 2022, Granite made the following property acquisitions:
Acquisitions During The Nine Months Ended September 30, 2023
Property | Location | Date acquired | Property purchase price | Transaction costs | Total acquisition cost | |||||||||||||
Income-producing properties: | ||||||||||||||||||
10144 Veterans Dr. | Avon, USA | March 30, 2023 | $ | 72,806 | $ | 128 | $ | 72,934 | ||||||||||
10207 Veterans Dr. | Avon, USA | March 30, 2023 | 34,089 | 102 | 34,191 | |||||||||||||
$ | 106,895 | $ | 230 | $ | 107,125 |
Granite REIT 2023 Third Quarter Report 77
Acquisitions During The Nine Months Ended September 30, 2022
Property | Location | Date acquired | Property purchase price | Transaction costs | Total acquisition cost | |||||||||||||||
Income-producing properties: | ||||||||||||||||||||
Georg-Beatzel Straße 15 | Wiesbaden, Germany | February 3, 2022 | $ | 62,033 | $ | 3,919 | $ | 65,952 | ||||||||||||
Raiffeisenstraße 28-32 | Korbach, Germany | February 3, 2022 | 60,295 | 3,819 | 64,114 | |||||||||||||||
In der Langen Else 4 | Erfurt, Germany | February 3, 2022 | 17,636 | 1,225 | 18,861 | |||||||||||||||
10566 Gateway Pt. | Clayton, IN | April 14, 2022 | 121,258 | 98 | 121,356 | |||||||||||||||
2128 Gateway Pt. | Clayton, IN | April 14, 2022 | 57,886 | 105 | 57,991 | |||||||||||||||
102 Parkshore Dr. | Brampton, ON | May 24, 2022 | 20,850 | 696 | 21,546 | |||||||||||||||
195 Steinway Blvd. | Etobicoke, ON | May 26, 2022 | 17,700 | 1,266 | 18,966 | |||||||||||||||
Swaardvenstraat 75 | Tilburg, Netherlands | July 1, 2022 | 102,141 | 185 | 102,326 | |||||||||||||||
459,799 | 11,313 | 471,112 | ||||||||||||||||||
Property under development: | ||||||||||||||||||||
905 Belle Ln. | Bolingbrook, IL | May 5, 2022 | 14,516 | 87 | 14,603 | |||||||||||||||
Development land: | ||||||||||||||||||||
161 Markel Dr. | Brant County, ON | August 19, 2022 | 6,368 | 210 | 6,578 | |||||||||||||||
$ | 480,683 | $ | 11,610 | $ | 492,293 |
During the nine month period ended September 30, 2023, transaction costs of $0.2 million (2022 – $11.6 million), which included legal and advisory costs (2022 – land transfer taxes, legal and advisory costs), were first capitalized to the cost of the respective properties and then subsequently expensed to net fair value losses (gains) on investment properties on the condensed combined statements of net income (loss) as a result of measuring the properties at fair value.
4. INVESTMENT PROPERTIES
|
As at | September 30, 2023 | December 31, 2022 | ||||||
Income-producing properties | $ | 8,741,541 | $ | 8,486,105 | ||||
Properties under development | 111,208 | 272,504 | ||||||
Land held for development | 45,791 | 80,962 | ||||||
$ | 8,898,540 | $ | 8,839,571 |
78 Granite REIT 2023 Third Quarter Report
Changes in investment properties are shown in the following table:
Nine months ended September 30, 2023 | Year Ended December 31, 2022 | |||||||||||||||||||||||||||
Income- producing properties | Properties under development | Land held for development | Income- producing properties | Properties under | Land held for development | |||||||||||||||||||||||
Balance, beginning of period | $ | 8,486,105 | $ | 272,504 | $ | 80,962 | $ | 7,727,368 | $ | 162,817 | $ | 80,973 | ||||||||||||||||
Maintenance or improvements | 6,808 | – | – | 9,680 | – | – | ||||||||||||||||||||||
Leasing costs | 3,855 | 1,577 | – | 10,153 | – | – | ||||||||||||||||||||||
Tenant allowances | 2,858 | 47 | – | 574 | – | – | ||||||||||||||||||||||
Developments or expansions | 40,029 | 50,947 | 1,442 | 43,940 | 228,099 | 2,853 | ||||||||||||||||||||||
Acquisitions (note 3) | 107,125 | – | – | 471,112 | 14,603 | 6,578 | ||||||||||||||||||||||
Transfer to properties under development | – | 50,007 | (50,007 | ) | – | 17,549 | (17,549 | ) | ||||||||||||||||||||
Transfer to income-producing properties | 288,979 | (288,979 | ) | – | 223,040 | (223,040 | ) | – | ||||||||||||||||||||
Amortization of straight-line rent | 13,595 | – | – | 10,591 | – | – | ||||||||||||||||||||||
Amortization of tenant allowances | (3,316 | ) | – | – | (4,149 | ) | – | – | ||||||||||||||||||||
Other changes | 106 | 1 | 6 | 374 | 21 | 14 | ||||||||||||||||||||||
Fair value (losses) gains, net | (183,262 | ) | 26,506 | 13,382 | (285,127 | ) | 56,536 | 6,929 | ||||||||||||||||||||
Foreign currency translation, net | (21,341 | ) | (1,402 | ) | 6 | 321,078 | 15,919 | 1,164 | ||||||||||||||||||||
Classified as assets held for sale (note 5) | – | – | – | (42,529 | ) | – | – | |||||||||||||||||||||
Balance, end of period | $ | 8,741,541 | $ | 111,208 | $ | 45,791 | $ | 8,486,105 | $ | 272,504 | $ | 80,962 |
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 were primarily determined by using a 10-year cash flow and subsequent reversionary value discounted back to present value. The fair values of properties under development are measured using a discounted cash flow model, net of costs to complete, as of the balance sheet date. The valuation metrics utilized to derive the Trust’s investment property valuations are determined by management. The Trust does not value its investment properties based on models prepared by external appraisers but uses such external appraisals as data points, alongside other external market information for management to arrive at its own conclusions on values. Management receives valuation assumptions from external appraisers such as discount rates, terminal capitalization rates and market rental rates, however, the Trust also considers its knowledge of historical renewal experiences with its tenants, its understanding of certain specialized aspects of the Trust’s portfolio and tenant profile, and its knowledge of the current condition of the properties to determine proprietary market leasing assumptions, including lease renewal probabilities, renewal rents and capital expenditures. There has been no change in the valuation methodology during the period.
Granite REIT 2023 Third Quarter Report 79
Included in investment properties as at September 30, 2023 is $62.2 million (December 31, 2022 – $48.6 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 19).
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 | September 30, 2023 | December 31, 2022(1) | ||||||||||||||||||||||||||||||
Weighted average(2) | Maximum | Minimum | Weighted average(2) | Maximum | Minimum | |||||||||||||||||||||||||||
Canada | ||||||||||||||||||||||||||||||||
Discount rate | 6.51% | 7.50% | 5.75% | 6.26% | 7.25% | 5.25% | ||||||||||||||||||||||||||
Terminal capitalization rate | 5.37% | 6.50% | 4.75% | 5.19% | 6.50% | 4.25% | ||||||||||||||||||||||||||
United States | ||||||||||||||||||||||||||||||||
Discount rate | 7.00% | 10.50% | 6.15% | 6.45% | 10.25% | 5.50% | ||||||||||||||||||||||||||
Terminal capitalization rate | 5.99% | 9.25% | 5.15% | 5.57% | 9.25% | 4.75% | ||||||||||||||||||||||||||
Germany | ||||||||||||||||||||||||||||||||
Discount rate | 6.98% | 9.50% | 5.70% | 6.48% | 11.00% | 4.90% | ||||||||||||||||||||||||||
Terminal capitalization rate | 5.98% | 8.75% | 4.70% | 5.50% | 10.00% | 4.30% | ||||||||||||||||||||||||||
Austria | ||||||||||||||||||||||||||||||||
Discount rate | 8.68% | 9.90% | 8.15% | 8.59% | 9.90% | 8.15% | ||||||||||||||||||||||||||
Terminal capitalization rate | 7.40% | 8.25% | 6.75% | 7.32% | 7.90% | 6.75% | ||||||||||||||||||||||||||
Netherlands | ||||||||||||||||||||||||||||||||
Discount rate | 6.17% | 7.65% | 5.40% | 5.43% | 6.85% | 4.75% | ||||||||||||||||||||||||||
Terminal capitalization rate | 6.41% | 9.00% | 5.75% | 5.73% | 8.50% | 5.00% | ||||||||||||||||||||||||||
Total | ||||||||||||||||||||||||||||||||
Discount rate | 6.98% | 10.50% | 5.40% | 6.50% | 11.00% | 4.75% | ||||||||||||||||||||||||||
Terminal capitalization rate | 6.03% | 9.25% | 4.70% | 5.66% | 10.00% | 4.25% |
(1) | Excludes assets held for sale (note 5). |
(2) | Weighted based on income-producing property fair value. |
5. ASSETS HELD FOR SALE AND DISPOSITIONS
|
80 Granite REIT 2023 Third Quarter Report
Assets Held for Sale
At September 30, 2023, there were no investment properties classified as assets held for sale. At December 31, 2022, two income-producing properties located in Canada and the United States, having a total fair value of $41.2 million, were classified as assets held for sale.
Dispositions
During the nine month period ended September 30, 2023, Granite disposed of two income-producing properties located in Canada and the United States. The details of the disposed properties are as follows:
Property | Location | Date disposed | Sale price | |||||||
50 Casmir Ct. | Concord, Canada | August 15, 2023 | $ | 20,575 | ||||||
4701 S. Cowan Rd. | Muncie, USA | March 15, 2023 | 24,703 | |||||||
$ | 45,278 |
During the nine month period ended September 30, 2022, Granite disposed of two income-producing properties and one piece of land located in Poland and the Czech Republic for gross proceeds totaling $66.0 million.
During the three and nine month periods ended September 30, 2023, Granite incurred $0.9 million (2022 – nil) and $1.5 million (2022 – $0.7 million), respectively, of broker commissions and legal and advisory costs associated with the disposals which are included in loss on sale of investment properties on the condensed combined statements of net income (loss).
The following table summarizes the fair value changes in properties classified as assets held for sale:
Nine Months Ended September 30, 2023 | Year Ended December 31, 2022 | |||||||
Balance, beginning of period | $ | 41,182 | $ | 64,612 | ||||
Fair value gains, net | 3,627 | 1,934 | ||||||
Foreign currency translation, net | 469 | (1,877 | ) | |||||
Other changes | – | 5 | ||||||
Disposals | (45,278 | ) | (66,021 | ) | ||||
Classified as assets held for sale | – | 42,529 | ||||||
Balance, end of period | $ | – | $ | 41,182 |
6. OTHER ASSETS
|
Granite REIT 2023 Third Quarter Report 81
As at | September 30, 2023 | December 31, 2022 | ||||||
Deferred financing costs associated with the revolving credit facility | $ | 2,404 | $ | 1,890 | ||||
Long-term receivables | 264 | 291 | ||||||
$ | 2,668 | $ | 2,181 |
7. LOAN RECEIVABLE
|
In conjunction with the closing of the acquisition of two industrial properties in Avon, United States, on March 30, 2023 (note 3), the loan receivable made to the developer of the properties with an outstanding balance of $76.8 million (US$56.4 million) was repaid. As at December 31, 2022, the loan balance was $69.2 million (US$51.1 million).
8. UNSECURED DEBT AND RELATED DERIVATIVES
|
(a) | Unsecured Revolving Credit Facility |
On March 3, 2023, the Trust amended its existing unsecured revolving credit facility (the ‘‘Credit Facility’’) to extend the maturity date for a new five-year term to March 31, 2028, with a limit of $1.0 billion. The Trust also amended the benchmark rates from the London Interbank Offered Rate (“LIBOR”) to the Secured Overnight Financing Rate (“SOFR”), including a fixed spread for the basis difference between LIBOR and SOFR, for US dollar denominated draws and from LIBOR to the Euro Interbank Offered Rate (“EURIBOR”) for Euro denominated draws. Such amendments to the benchmark rates resulted in no economic impact to Granite’s borrowing rates. As it is anticipated that the administrator of the Canadian Dollar Offered Rate (“CDOR”) will cease publication of CDOR by June 28, 2024 and the Canadian financial benchmark will be replaced by the Canadian Overnight Repo Rate Average (“CORRA”), the Trust’s Credit Facility contains fallback provisions to transition from CDOR to CORRA for Canadian dollar denominated draws when CDOR is discontinued.
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 September 30, 2023, the Trust had no amount drawn (December 31, 2022 – nil) from the Credit Facility and $2.9 million (December 31, 2022 – $3.5 million) in letters of credit issued against the Credit Facility.
82 Granite REIT 2023 Third Quarter Report
(b) | Unsecured Debentures and Term Loans, Net |
As at | September 30, 2023 | December 31, 2022 | ||||||||||||||||||
Maturity Date | Amortized Cost(1) | Principal issued and | Amortized Cost(1) | Principal issued and | ||||||||||||||||
2023 Debentures | November 30, 2023 | $ | 399,946 | $ | 400,000 | $ | 399,707 | $ | 400,000 | |||||||||||
2027 Debentures | June 4, 2027 | 498,386 | 500,000 | 498,057 | 500,000 | |||||||||||||||
2028 Debentures | August 30, 2028 | 498,096 | 500,000 | 497,806 | 500,000 | |||||||||||||||
2030 Debentures | December 18, 2030 | 497,841 | 500,000 | 497,616 | 500,000 | |||||||||||||||
2024 Term Loan | December 19, 2024 | 250,227 | 250,416 | 250,088 | 250,351 | |||||||||||||||
2025 Term Loan | September 15, 2025 | 540,988 | 541,440 | 540,677 | 541,300 | |||||||||||||||
September 2026 Term Loan | September 8, 2026 | 100,103 | 100,276 | – | – | |||||||||||||||
December 2026 Term Loan | December 11, 2026 | 299,743 | 300,000 | 299,686 | 300,000 | |||||||||||||||
$ | 3,085,330 | $ | 3,092,132 | $ | 2,983,637 | $ | 2,991,651 |
(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 included in interest expense. |
As at | September 30, 2023 | December 31, 2022 | ||||||
Unsecured Debentures and Term Loans, Net | ||||||||
Non-current | $ | 2,685,384 | $ | 2,583,930 | ||||
Current | 399,946 | 399,707 | ||||||
$ | 3,085,330 | $ | 2,983,637 |
2024 Term Loan
Interest on drawn amounts of the 2024 Term Loan is calculated based on LIBOR plus an applicable margin determined by reference to the external credit rating of Granite LP. As the Federal Reserve Board discontinued the publication of the US dollar LIBOR benchmark rates on June 30, 2023 and replaced it with SOFR, on April 19, 2023, Granite amended the 2024 Term Loan and 2024 Cross Currency Interest Rate Swap to update the benchmark rates in these agreements from LIBOR to SOFR, including a fixed spread for the basis difference between LIBOR and SOFR, without any economic impact or change to Granite’s risk management strategy.
September 2026 Term Loan
On September 7, 2023, Granite LP entered into and fully drew upon a €70.0 million senior unsecured non-revolving term facility that matures on September 8, 2026 (the “September 2026 Term Loan”). The September 2026 Term Loan is fully prepayable without penalty. Any amount repaid may not be re-borrowed. Interest on drawn amounts is calculated based on EURIBOR plus an applicable margin and is payable monthly in arrears. Deferred financing costs of $0.2 million were incurred and are recorded as a reduction against the principal owing.
December 2026 Term Loan
Granite REIT 2023 Third Quarter Report 83
On December 12, 2018, Granite LP entered into and fully drew upon a $300.0 million senior unsecured non-revolving term facility that originally matured on December 12, 2025. On November 27, 2019, Granite refinanced the $300.0 million term facility and extended the maturity date one year to December 11, 2026 (the “December 2026 Term Loan”). The December 2026 Term Loan is fully prepayable without penalty. Interest on drawn amounts of the December 2026 Term Loan is calculated based on CDOR plus an applicable margin determined by reference to the external credit rating of Granite LP. As a result of the anticipated cessation of the publication of CDOR by June 28, 2024 and the Canadian financial benchmark being replaced by CORRA, Granite intends to amend the December 2026 Term Loan and December 2026 Cross Currency Interest Rate Swap before the end of June 2024 to update the benchmark rates in these agreements from CDOR to CORRA without any economic impact.
(c) Derivatives
As at | September 30, 2023 | December 31, 2022 | ||||||||||||||||||||||||||||||||||
Notional amount to be paid | Interest payment rate | Notional amount to be received | Interest receipt rate | Maturity date | Fair value assets (liabilities) | Fair value assets (liabilities) | ||||||||||||||||||||||||||||||
2023 Cross Currency Interest Rate Swap | 281,100 | EUR | 2.430 % | 400,000 | CAD | 3.873 % | Nov. 30, 2023 | $ | (1,094) | $ | (7,076) | |||||||||||||||||||||||||
2024 Cross Currency Interest Rate Swap | 168,200 | EUR | 0.522 % | 185,000 | USD | | SOFR plus margin (4) | | Dec. 19, 2024 | 23,212 | 24,891 | |||||||||||||||||||||||||
2025 Interest Rate Swap (1) | – | – | 5.016 % | – | – | | SOFR plus margin | | Sept. 15, 2025 | 12,643 | 5,244 | |||||||||||||||||||||||||
September 2026 Interest Rate Swap (2) | – | – | 4.333 % | – | – | | EURIBOR plus margin | | Sept. 8, 2026 | 334 | – | |||||||||||||||||||||||||
December 2026 Cross Currency Interest Rate Swap | 205,500 | EUR | 1.355 % | 300,000 | CAD | | CDOR plus margin | | Dec. 11, 2026 | 38,632 | 39,264 | |||||||||||||||||||||||||
2027 Cross Currency Interest Rate Swap | 370,300 | USD | 2.964 % | 500,000 | CAD | 3.062 % | June 4, 2027 | 1,602 | 8,123 | |||||||||||||||||||||||||||
2028 Cross Currency Interest Rate Swap | 119,100 | USD | 2.096 % | 150,000 | CAD | 2.194 % | Aug. 30, 2028 | (8,139) | (6,391) | |||||||||||||||||||||||||||
2028 Cross Currency Interest Rate Swap (3) | 242,100 | EUR | 0.536 % | 350,000 | CAD | 2.194 % | Aug. 30, 2028 | 9,272 | 19,450 | |||||||||||||||||||||||||||
2030 Cross Currency Interest Rate Swap | 319,400 | EUR | 1.045 % | 500,000 | CAD | 2.378 % | Dec. 18, 2030 | 42,671 | 54,883 | |||||||||||||||||||||||||||
$ | 119,133 | $ | 138,388 |
(1) | On September 15, 2022, Granite LP entered into a float to fixed interest rate swap (the “2025 Interest Rate Swap”) to exchange the floating SOFR portion of the interest payments of the 2025 Term Loan for fixed interest payments resulting in an all-in fixed interest rate of 5.016%. |
(2) | On September 8, 2023, Granite LP entered into a float to fixed interest rate swap (the “September 2026 Interest Rate Swap”) to exchange the floating EURIBOR portion of the interest payments of the September 2026 Term Loan for fixed interest payments resulting in an all-in fixed interest rate of 4.333%. |
(3) | On February 3, 2022, Granite terminated $350.0 million of a total $500.0 million principal of the 2028 Cross Currency Interest Rate Swap and simultaneously entered into a new $350.0 million cross-currency interest rate swap maturing August 30, 2028, to exchange the Canadian dollar denominated principal and interest payments of the 2028 Debentures for Euro denominated payments at a fixed interest rate of 0.536%. Upon termination, Granite paid $6.6 million to settle the mark-to-market liability relating to the $350.0 million principal portion of the 2028 Cross Currency Interest Rate Swap. |
84 Granite REIT 2023 Third Quarter Report
(4) | On April 19, 2023, Granite amended the 2024 Cross Currency Interest Rate Swap to update the benchmark rate in the agreement from LIBOR to SOFR, including a fixed spread for the basis difference between LIBOR and SOFR, without any economic impact or change to Granite’s risk management strategy. |
September 30, 2023 | December 31, 2022 | |||||||
Financial assets at fair value | ||||||||
Non-current | $ | 128,366 | $ | 151,855 | ||||
Current | – | – | ||||||
$ | 128,366 | $ | 151,855 | |||||
| ||||||||
Financial liabilities at fair value | ||||||||
Non-current | $ | 8,139 | $ | 6,391 | ||||
Current | 1,094 | 7,076 | ||||||
$ | 9,233 | $ | 13,467 |
For the three and nine month periods ended September 30, 2023, the cross currency interest rate swaps, the EUR denominated draws under the Credit Facility, the combination of the 2025 Term Loan and 2025 Interest Rate Swap, and the combination of the September 2026 Term Loan and September 2026 Interest Rate Swap are designated as net investment hedges of the Trust’s investments in foreign operations (“Net Investment Hedges”). The effectiveness of the hedges is assessed quarterly. Gains and losses associated with the effective portion of the hedges are recognized in other comprehensive income (loss). For the three and nine month periods ended September 30, 2023, the Trust has assessed the Net Investment Hedges, except for a portion of the 2024 Cross Currency Interest Rate Swap, a portion of the combination of the 2025 Term Loan and 2025 Interest Rate Swap, and a portion of the combination of the September 2026 Term Loan and September 2026 Interest Rate Swap, to be effective.
For the three and nine month periods ended September 30, 2023, a net fair value loss of $2.4 million and $4.4 million has been recognized in fair value losses (gains) on financial instruments, net (note 14(e)), respectively, in the condensed combined statements of net income (loss), due to ineffectiveness relating to the interest rate portion of certain hedging relationships described above.
The Trust has elected to record the differences resulting from the interest rates associated with the derivatives in the condensed combined statements of net income (loss).
9. SECURED DEBT
|
Granite REIT 2023 Third Quarter Report 85
On December 17, 2021, Granite entered into a secured construction loan relating to a development project in Texas, United States, which was substantially completed in January 2023. The loan had a maximum draw amount of $59.9 million (US$44.3 million) and was secured by the property under construction and related land. On June 9, 2023, the loan with an outstanding balance of $56.2 million (US$42.1 million) was repaid with proceeds from the Credit Facility. As at December 31, 2022, the loan balance was $51.4 million (US$38.0 million).
10. LEASE OBLIGATIONS
|
As at September 30, 2023, 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.
The present value of future minimum lease payments relating to the right-of-use assets as at September 30, 2023 in aggregate for the next five years and thereafter are as follows:
Remainder of 2023 | $ | 160 | ||
2024 | 764 | |||
2025 | 764 | |||
2026 | 760 | |||
2027 | 469 | |||
2028 and thereafter | 30,261 | |||
$ | 33,178 |
During the three and nine month periods ended September 30, 2023, the Trust recognized $0.4 million (2022 – $0.4 million) and $1.2 million (2022 – $1.2 million) of interest expense, respectively, related to lease obligations (note 14(d)).
11. CURRENT LIABILITIES
|
Deferred Revenue
Deferred revenue relates to prepaid and unearned revenue received from tenants and fluctuates with the timing of rental receipts.
86 Granite REIT 2023 Third Quarter Report
Accounts Payable and Accrued Liabilities
As at | September 30, 2023 | December 31, 2022 | ||||||
Accounts payable | $ | 3,807 | $ | 11,204 | ||||
Commodity tax payable | 5,441 | 6,087 | ||||||
Tenant security deposits | 7,009 | 7,257 | ||||||
Employee unit-based compensation | 7,683 | 5,994 | ||||||
Trustee/director unit-based compensation | 8,415 | 6,932 | ||||||
Accrued salaries, incentives and benefits | 5,226 | 6,826 | ||||||
Accrued interest payable | 18,778 | 9,974 | ||||||
Accrued construction costs | 15,372 | 36,659 | ||||||
Accrued professional fees | 1,580 | 1,445 | ||||||
Acquisition related liabilities | 271 | 5,042 | ||||||
Accrued property operating costs | 19,535 | 8,750 | ||||||
Other tenant related liabilities | 7,242 | 5,104 | ||||||
Other accrued liabilities | 1,115 | 3,501 | ||||||
$ | 101,474 | $ | 114,775 |
12. DISTRIBUTIONS TO STAPLED UNITHOLDERS
|
Total distributions declared to stapled unitholders in the three month period ended September 30, 2023 were $51.0 million (2022 – $50.4 million) or $0.8000 per stapled unit (2022 – $0.7750 per stapled unit). Total distributions declared to stapled unitholders in the nine month period ended September 30, 2023 were $153.0 million (2022 – $152.3 million) or $2.40 per stapled unit (2022 – $2.32 per stapled unit).
Distributions payable at September 30, 2023 of $17.0 million ($0.2667 per stapled unit), representing the September 2023 monthly distribution, were paid on October 16, 2023. Distributions payable at December 31, 2022 of $17.0 million were paid on January 17, 2023 and represented the December 2022 monthly distribution.
Subsequent to September 30, 2023, the distributions declared in October 2023 in the amount of $17.0 million or $0.2667 per stapled unit will be paid on November 15, 2023.
13. 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 September 30, 2023 and December 31,
Granite REIT 2023 Third Quarter Report 87
2022, 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:
2023 | 2022 | |||||||||||||||||
Number (000s) | Weighted Average Fair Value | Number (000s) | Weighted Average Fair Value | |||||||||||||||
DSUs outstanding, January 1 | 101 | $64.58 | 85 | $58.50 | ||||||||||||||
New grants and distributions | 16 | 70.97 | 11 | 98.69 | ||||||||||||||
DSUs outstanding, September 30 | 117 | $65.47 | 96 | $63.27 |
Executive Deferred Stapled Unit Plan
The Executive 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:
2023 | 2022 | |||||||||||||||||
Number (000s) | Weighted Average Grant Date Fair Value | Number (000s) | Weighted Average Grant Date Fair Value | |||||||||||||||
RSUs and PSUs outstanding, January 1 | 123 | $ 87.18 | 128 | $ 67.19 | ||||||||||||||
New grants and distributions(1) | 79 | 71.85 | 57 | 102.02 | ||||||||||||||
Forfeited | (2 | ) | 82.22 | – | 88.02 | |||||||||||||
PSUs added by performance factor | 27 | 83.37 | 27 | 96.22 | ||||||||||||||
Settled in cash | (38 | ) | 77.76 | (43 | ) | 68.03 | ||||||||||||
Settled in stapled units | (36 | ) | 77.76 | (42 | ) | 68.03 | ||||||||||||
RSUs and PSUs outstanding, September 30(2) | 153 | $ 83.19 | 127 | $ 87.92 |
(1) | Includes 40.1 RSUs and 34.4 PSUs granted during the nine month period ended September 30, 2023 (2022 – 29.6 RSUs and 22.0 PSUs). |
(2) | Total restricted stapled units outstanding at September 30, 2023 include a total of 67.3 RSUs and 85.8 PSUs granted (2022 – 51.2 RSUs and 75.4 PSUs). |
The fair value of the outstanding RSUs was $3.5 million at September 30, 2023 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 11).
88 Granite REIT 2023 Third Quarter Report
The fair value of the outstanding PSUs was $4.2 million at September 30, 2023 and is recorded as a liability in the employee unit-based compensation payables (note 11). 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, 2023, January 1, 2022 and January 1, 2021 | |||
PSUs outstanding | 85,824 | |||
Weighted average term to expiry | 1.3 years | |||
Average volatility rate | 21.1% | |||
Weighted average risk free interest rate | 4.9% |
The Trust’s unit-based compensation expense (recovery) recognized in general and administrative expenses was:
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||
2023 | 2022 | 2023 | 2022 | |||||||||||||||||
DSUs for trustees/directors(1) | $ | (129 | ) | $ | (849 | ) | $ | 1,483 | $ | (2,508 | ) | |||||||||
Restricted Stapled Unit Plan for executives and employees | 527 | (378 | ) | 6,996 | 988 | |||||||||||||||
Unit-based compensation expense (recovery) | $ | 398 | $ | (1,227 | ) | $ | 8,479 | $ | (1,520 | ) | ||||||||||
Fair value remeasurement (recovery) expense included in the above: | ||||||||||||||||||||
DSUs for trustees/directors | $ | (526 | ) | $ | (1,229 | ) | $ | 327 | $ | (3,636 | ) | |||||||||
Restricted Stapled Unit Plan for executives and employees | (677 | ) | (1,318 | ) | 3,481 | (2,691 | ) | |||||||||||||
Total fair value remeasurement (recovery) expense | $ | (1,203 | ) | $ | (2,547 | ) | $ | 3,808 | $ | (6,327 | ) |
(1) | In respect of fees mandated and elected to be taken as DSUs. |
Granite REIT 2023 Third Quarter Report 89
(a) Normal Course Issuer Bid
On May 19, 2023, 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 6,349,296 of Granite’s issued and outstanding stapled units. The NCIB commenced on May 24, 2023 and will conclude on the earlier of the date on which purchases under the bid have been completed and May 23, 2024. Pursuant to the policies of the TSX, daily purchases made by Granite through the TSX may not exceed 30,468 stapled units, subject to certain exceptions. Granite has 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 24, 2022 to May 23, 2023.
During the nine month period ended September 30, 2023, there were no stapled unit repurchases under the NCIB. During the nine month period ended September 30, 2022, Granite repurchased 1,143,600 stapled units at an average stapled unit cost of $75.56 for total consideration of $86.4 million, excluding commissions. The difference between the repurchase price and the average cost of the stapled units of $26.3 million was recorded to contributed surplus.
(b) At-The-Market Equity Distribution Program
On November 3, 2021, Granite filed a prospectus supplement to the base shelf prospectus of Granite REIT and Granite GP establishing an at-the-market equity distribution program (the “ATM Program”), in each of the provinces and territories of Canada, that allows it to issue and sell, at its discretion, up to $250.0 million of stapled units to the public, from time to time. Stapled units sold under the ATM Program will be sold at the prevailing market prices at the time of sale when issued, directly through the facilities of the Toronto Stock Exchange or any other recognized marketplace upon which the stapled units are listed or quoted or where the stapled units are traded in Canada.
During the nine month period ended September 30, 2023, there were no stapled units issued under the ATM Program. During the nine month period ended September 30, 2022, Granite issued 136,100 stapled units under the ATM Program at an average stapled unit price of $98.77 for gross proceeds of $13.4 million, and incurred issuance costs of $0.3 million, for net proceeds of $13.1 million. The issuance costs were recorded as a reduction to stapled unitholders’ equity.
90 Granite REIT 2023 Third Quarter Report
(c) Accumulated Other Comprehensive Income
Accumulated other comprehensive income consists of the following:
As at September 30, | 2023 | 2022 | ||||||
Foreign currency translation gains on investments in subsidiaries, net of related hedging activities and non-controlling interests(1) | $ | 306,741 | $ | 243,683 | ||||
Fair value gains on derivatives designated as net investment hedges | 71,592 | 173,384 | ||||||
$ | 378,333 | $ | 417,067 |
(1) | Includes foreign currency translation gains and losses from non-derivative financial instruments designated as net investment hedges. |
14. RENTAL REVENUE, RECOVERIES, COSTS AND EXPENSES
|
(a) | Rental revenue consists of: |
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||
2023 | 2022 | 2023 | 2022 | |||||||||||||||
Base rent | $ | 107,399 | $ | 93,978 | $ | 317,562 | $ | 275,853 | ||||||||||
Straight-line rent amortization | 4,036 | 1,938 | 13,595 | 6,976 | ||||||||||||||
Tenant incentive amortization | (1,087 | ) | (1,063 | ) | (3,316 | ) | (3,321 | ) | ||||||||||
Property tax recoveries | 13,750 | 10,968 | 41,456 | 32,560 | ||||||||||||||
Property insurance recoveries | 1,646 | 1,200 | 4,798 | 3,672 | ||||||||||||||
Operating cost recoveries | 5,718 | 4,584 | 17,308 | 14,225 | ||||||||||||||
$ | 131,462 | $ | 111,605 | $ | 391,403 | $ | 329,965 |
Granite REIT 2023 Third Quarter Report 91
(b) Property operating costs consist of:
| ||||||||||||||||||
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||
2023 | 2022 | 2023 | 2022 | |||||||||||||||
Non-recoverable from tenants: | ||||||||||||||||||
Property taxes and utilities | $ | 291 | $ | 251 | $ | 969 | $ | 646 | ||||||||||
Property insurance | 164 | 208 | 518 | 568 | ||||||||||||||
Repairs and maintenance | 120 | 120 | 347 | 288 | ||||||||||||||
Property management fees | 148 | 75 | 306 | 255 | ||||||||||||||
Other | 73 | 152 | 195 | 576 | ||||||||||||||
$ | 796 | $ | 806 | $ | 2,335 | $ | 2,333 | |||||||||||
Recoverable from tenants: | ||||||||||||||||||
Property taxes and utilities | $ | 15,614 | $ | 12,404 | $ | 46,351 | $ | 35,984 | ||||||||||
Property insurance | 1,856 | 1,362 | 5,469 | 3,939 | ||||||||||||||
Repairs and maintenance | 2,400 | 2,019 | 7,240 | 6,956 | ||||||||||||||
Property management fees | 1,422 | 1,002 | 3,908 | 2,698 | ||||||||||||||
Other | 202 | 70 | 916 | 111 | ||||||||||||||
$ | 21,494 | $ | 16,857 | $ | 63,884 | $ | 49,688 | |||||||||||
Property operating costs | $ | 22,290 | $ | 17,663 | $ | 66,219 | $ | 52,021 | ||||||||||
(c) General and administrative expenses consist of:
|
| |||||||||||||||||
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||
2023 | 2022 | 2023 | 2022 | |||||||||||||||
Salaries, incentives and benefits | $ | 4,498 | $ | 4,758 | $ | 13,478 | $ | 13,730 | ||||||||||
Audit, legal and consulting | 1,105 | 710 | 3,403 | 2,577 | ||||||||||||||
Trustee/director fees including distributions, revaluations and expenses(1) | (50 | ) | (787 | ) | 1,798 | (2,337 | ) | |||||||||||
RSU and PSU compensation expense (recovery) including distributions and revaluations(1) | 527 | (378 | ) | 6,996 | 988 | |||||||||||||
Other public entity costs | 653 | 824 | 1,923 | 2,307 | ||||||||||||||
Office rents including property taxes and common area maintenance costs | 158 | 82 | 448 | 324 | ||||||||||||||
Capital tax | 358 | 182 | 763 | 565 | ||||||||||||||
Information technology costs | 608 | 591 | 1,879 | 1,649 | ||||||||||||||
Other | 652 | 709 | 1,697 | 1,871 | ||||||||||||||
$ | 8,509 | $ | 6,691 | $ | 32,385 | $ | 21,674 | |||||||||||
Less: capitalized general and administrative expenses | (107 | ) | (230 | ) | (409 | ) | (753) | |||||||||||
$ | 8,402 | $ | 6,461 | $ | 31,976 | $ | 20,921 |
(1) | For fair value remeasurement expense (recovery) amounts see note 13(a). |
92 Granite REIT 2023 Third Quarter Report
(d) | Interest expense and other financing costs consist of: |
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||
2023 | 2022 | 2023 | 2022 | |||||||||||||||
Interest and amortized issuance costs relating to debentures and term loans | $ | 17,328 | $ | 10,694 | $ | 51,255 | $ | 30,437 | ||||||||||
Amortization of deferred financing costs and other interest expense and charges | 1,585 | 2,559 | 5,000 | 5,005 | ||||||||||||||
Interest expense related to lease obligations (note 10) | 398 | 389 | 1,196 | 1,154 | ||||||||||||||
$ | 19,311 | $ | 13,642 | $ | 57,451 | $ | 36,596 | |||||||||||
Less: capitalized interest | (480 | ) | (954 | ) | (1,624 | ) | (2,317 | ) | ||||||||||
$ | 18,831 | $ | 12,688 | $ | 55,827 | $ | 34,279 | |||||||||||
(e) Fair value losses (gains) on financial instruments, net, consist of:
|
| |||||||||||||||||
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||
2023 | 2022 | 2023 | 2022 | |||||||||||||||
Foreign exchange collar contracts, net (note 17(a)) | $ | 99 | $ | 3,439 | $ | (2,522 | ) | $ | 3,184 | |||||||||
Derivatives, net (note 8(c)) | 2,421 | (4,806 | ) | 4,391 | (12,485 | ) | ||||||||||||
$ | 2,520 | $ | (1,367 | ) | $ | 1,869 | $ | (9,301 | ) |
For the three and nine month periods ended September 30, 2023, the net fair value losses on financial instruments of $2.5 million and $1.9 million, respectively, are comprised of the net fair value loss of $0.1 million and net fair value gain of $2.5 million on foreign exchange collar contracts, respectively, and net fair value losses on derivatives of $2.4 million and $4.4 million, respectively, which are associated with the fair value movements of the 2024 Cross Currency Interest Rate Swap, the combination of the 2025 Term Loan and 2025 Interest Rate Swap, and the combination of the September 2026 Term Loan and September 2026 Interest Rate Swap. The Trust partially employed or did not employ hedge accounting for the derivatives and foreign exchange collars, therefore the change in fair value is recognized in fair value losses (gains) on financial instruments, net in the condensed combined statements of net income (loss).
For the three and nine month periods ended September 30, 2022, the net fair value gains on financial instruments of $1.4 million and $9.3 million, respectively, were comprised of the net fair value losses on foreign exchange collar contracts of $3.4 million and $3.2 million, respectively, and net fair value gains on the derivatives of $4.8 million and $12.5 million, respectively, which were associated with the fair value movements of the 2024 Cross Currency Interest Rate Swap and the combination of the 2025 Term Loan and 2025 Interest Rate Swap. The Trust partially employed or did not employ hedge accounting for the derivatives and foreign exchange collars, therefore the change in fair value was recognized in fair value losses (gains) on financial instruments, net, in the condensed combined statements of net income (loss).
Granite REIT 2023 Third Quarter Report 93
15. INCOME TAXES
|
(a) | The major components of the income tax recovery are: |
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||
2023 | 2022 | 2023 | 2022 | |||||||||||||||
Current income tax expense | $ | 2,184 | $ | 1,874 | $ | 6,641 | $ | 5,813 | ||||||||||
Deferred income tax recovery | (10,255 | ) | (61,283 | ) | (17,154 | ) | (46,625 | ) | ||||||||||
Income tax recovery | $ | (8,071 | ) | $ | (59,409 | ) | $ | (10,513 | ) | $ | (40,812 | ) | ||||||
(b)The effective income tax rate reported in the condensed combined statements of net income (loss) varies from the Canadian statutory rate for the following reasons:
|
| |||||||||||||||||
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||
2023 | 2022 | 2023 | 2022 | |||||||||||||||
Income (loss) before income taxes | $ | 26,086 | $ | (152,657 | ) | $ | 95,981 | $ | 241,335 | |||||||||
Expected income taxes at the Canadian statutory tax rate of 26.5% (2022 - 26.5%) | $ | 6,913 | $ | (40,454 | ) | $ | 25,435 | $ | 63,954 | |||||||||
Income distributed and taxable to unitholders | (16,506 | ) | (26,896 | ) | (43,496 | ) | (94,502 | ) | ||||||||||
Net foreign rate differentials | 81 | 5,582 | (960 | ) | 3,398 | |||||||||||||
Net change in provisions for uncertain tax positions | 160 | 359 | 1,176 | 1,100 | ||||||||||||||
Net permanent differences | (34 | ) | (42 | ) | 203 | 237 | ||||||||||||
Net effect of change in tax rates | – | – | – | (11,234 | ) | |||||||||||||
Non-recognition of deferred tax assets | 1,032 | – | 6,825 | – | ||||||||||||||
Withholding taxes and other | 283 | 2,042 | 304 | (3,765 | ) | |||||||||||||
Income tax recovery | $ | (8,071 | ) | $ | (59,409 | ) | $ | (10,513 | ) | $ | (40,812 | ) |
16. DETAILS OF CASH FLOWS
|
94 Granite REIT 2023 Third Quarter Report
(a) | Items not involving operating cash flows are shown in the following table: |
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||
2023 | 2022 | 2023 | 2022 | |||||||||||||||
Straight-line rent amortization | $ | (4,036 | ) | $ | (1,938 | ) | $ | (13,595 | ) | $ | (6,976 | ) | ||||||
Tenant incentive amortization | 1,087 | 1,063 | 3,316 | 3,321 | ||||||||||||||
Unit-based compensation expense (recovery) (note 13(a)) | 398 | (1,227 | ) | 8,479 | (1,520 | ) | ||||||||||||
Fair value losses (gains) on investment properties, net | 53,200 | 229,151 | 139,747 | (10,193 | ) | |||||||||||||
Depreciation and amortization | 310 | 419 | 946 | 1,174 | ||||||||||||||
Fair value losses (gains) on financial instruments, net (note 14(e)) | 2,520 | (1,367 | ) | 1,869 | (9,301 | ) | ||||||||||||
Loss on sale of investment properties | 891 | – | 1,496 | 676 | ||||||||||||||
Amortization of issuance costs relating to debentures and term loans | 452 | 429 | 1,388 | 1,252 | ||||||||||||||
Amortization of deferred financing costs | 131 | 145 | 403 | 436 | ||||||||||||||
Deferred income tax recovery (note 15(a)) | (10,255 | ) | (61,283 | ) | (17,154 | ) | (46,625 | ) | ||||||||||
Other | (44 | ) | (43 | ) | (132 | ) | (129 | ) | ||||||||||
$ | 44,654 | $ | 165,349 | $ | 126,763 | $ | (67,885 | ) | ||||||||||
(b) Changes in working capital balances are shown in the following table:
|
| |||||||||||||||||
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||
2023 | 2022 | 2023 | 2022 | |||||||||||||||
Accounts receivable | $ | (2,398 | ) | $ | (629 | ) | $ | 1,499 | $ | (2,573 | ) | |||||||
Prepaid expenses and other | (18 | ) | (1,213 | ) | (2,559 | ) | (1,101 | ) | ||||||||||
Accounts payable and accrued liabilities | 4,448 | 10,104 | (2,247 | ) | 558 | |||||||||||||
Deferred revenue | (2,386 | ) | 1,522 | 788 | 6,784 | |||||||||||||
$ | (354 | ) | $ | 9,784 | $ | (2,519 | ) | $ | 3,668 |
(c) | Non-cash investing and financing activities |
For the nine month period ended September 30, 2023, 36 thousand stapled units (2022 – 41 thousand stapled units) with a value of $3.0 million (2022 – $3.9 million) were issued under the Restricted Stapled Unit Plan (note 13(a)) and are not recorded in the condensed combined statements of cash flows.
In addition, for the nine month period ended September 30, 2023, the total impact from the foreign currency translations on the secured debt, unsecured debt and related derivatives of $1.5 million loss (2022 – $54.4 million gain) is not recorded in the condensed combined statements of cash flows.
Granite REIT 2023 Third Quarter Report 95
(d) | Cash and cash equivalents consist of: |
As at | September 30, 2023 | December 31, 2022 | ||||||
Cash | $ | 117,543 | $ | 127,091 | ||||
Short-term deposits | 40,764 | 7,990 | ||||||
$ | 158,307 | $ | 135,081 |
17. 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 September 30, 2023 and December 31, 2022:
As at | September 30, 2023 | December 31, 2022 | ||||||||||||||
Carrying Value | Fair Value | Carrying Value | Fair Value | |||||||||||||
Financial assets | ||||||||||||||||
Other assets | $ | 264 | (1) | $ | 264 | $ | 291 | (1) | $ | 291 | ||||||
Derivatives | 128,366 | 128,366 | 151,855 | 151,855 | ||||||||||||
Loan receivable | – | – | 69,186 | 69,186 | ||||||||||||
Accounts receivable | 10,618 | 10,618 | 12,176 | 12,176 | ||||||||||||
Prepaid expenses and other | 96 | (2) | 96 | – | – | |||||||||||
Cash and cash equivalents | 158,307 | 158,307 | 135,081 | 135,081 | ||||||||||||
$ | 297,651 | $ | 297,651 | $ | 368,589 | $ | 368,589 | |||||||||
Financial liabilities | ||||||||||||||||
Unsecured debentures, net | $ | 1,894,269 | (3) | $ | 1,658,160 | $ | 1,893,186 | (3) | $ | 1,672,290 | ||||||
Unsecured term loans, net | 1,191,061 | 1,191,061 | 1,090,451 | 1,090,451 | ||||||||||||
Secured debt | – | – | 51,373 | 51,373 | ||||||||||||
Derivatives | 9,233 | (4) | 9,233 | 13,467 | (4) | 13,467 | ||||||||||
Accounts payable and accrued liabilities | 101,474 | 101,474 | 114,775 | (5) | 114,775 | |||||||||||
Distributions payable | 16,992 | 16,992 | 16,991 | 16,991 | ||||||||||||
$ | 3,213,029 | $ | 2,976,920 | $ | 3,180,243 | $ | 2,959,347 |
(1) | Long-term receivables included in other assets (note 6). |
(2) | As at September 30, 2023, foreign exchange collars of $0.1 million included in prepaid expenses and other. |
(3) | Balance includes current and non-current portions (note 8(b)). |
(4) | Balance includes current and non-current portions (note 8(c)). |
(5) | As at December 31, 2022, foreign exchange collars of $2.4 million included in accounts payable and accrued liabilities. |
The fair values of the Trust’s loan receivable, accounts receivable, cash and cash equivalents, accounts payable and accrued liabilities and distributions payable approximate their carrying
96 Granite REIT 2023 Third Quarter Report
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 secured debt and term loans approximate their carrying amounts as the secured debt and term loans bear interest at rates comparable to the current market rates. The fair values of the derivatives and foreign exchange collars are determined using market inputs quoted by their counterparties.
The Trust periodically purchases foreign exchange collars to hedge specific anticipated foreign currency transactions and to mitigate its foreign exchange exposure on its net cash flows. At September 30, 2023, the Trust held 9 outstanding foreign exchange collar contracts (December 31, 2022 — 12) with a notional value of US$54.0 million (December 31, 2022 — US$72.0 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. At September 30, 2023, the Trust also held 12 outstanding foreign exchange collar contracts (December 31, 2022 — 18) with a notional value of €24.0 million (December 31, 2022 — €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 nine month periods ended September 30, 2023, the Trust recorded a net fair value loss of $0.1 million (2022 — $3.4 million) and a net fair value gain of $2.5 million (2022 — net fair value loss of $3.2 million), respectively, related to the outstanding foreign exchange collar contracts (note 14(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. |
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.
Granite REIT 2023 Third Quarter Report 97
As at September 30, 2023 | Level 1 | Level 2 | Level 3 | |||||||||
ASSETS AND LIABILITIES MEASURED OR DISCLOSED AT FAIR VALUE | ||||||||||||
Assets measured at fair value | ||||||||||||
Investment properties (note 4) | $ | – | $ | – | $ | 8,898,540 | ||||||
Derivatives (note 8) | – | 128,366 | – | |||||||||
Foreign exchange collars included in prepaid expenses and other | – | 96 | – | |||||||||
Liabilities measured or disclosed at fair value | ||||||||||||
Unsecured debentures, net (note 8) | 1,658,160 | – | – | |||||||||
Unsecured term loans, net (note 8) | – | 1,191,061 | – | |||||||||
Derivatives (note 8) | – | 9,233 | – | |||||||||
Net (liabilities) assets measured or disclosed at fair value | $ | (1,658,160 | ) | $ | (1,071,832 | ) | $ | 8,898,540 | ||||
| ||||||||||||
As at December 31, 2022 | Level 1 | Level 2 | Level 3 | |||||||||
ASSETS AND LIABILITIES MEASURED OR DISCLOSED AT FAIR VALUE | ||||||||||||
Assets measured at fair value | ||||||||||||
Investment properties (note 4) | $ | – | $ | – | $ | 8,839,571 | ||||||
Assets held for sale (note 5) | – | – | 41,182 | |||||||||
Derivatives (note 8) | – | 151,855 | – | |||||||||
Loan receivable (note 7) | – | 69,186 | – | |||||||||
Liabilities measured or disclosed at fair value | ||||||||||||
Unsecured debentures, net (note 8) | 1,672,290 | – | – | |||||||||
Unsecured term loans, net (note 8) | – | 1,090,451 | – | |||||||||
Secured debt (note 9) | – | 51,373 | – | |||||||||
Foreign exchange collars included in accounts payable and accrued liabilities | – | 2,426 | – | |||||||||
Derivatives (note 8) | – | 13,467 | – | |||||||||
Net (liabilities) assets measured or disclosed at fair value | $ | (1,672,290 | ) | $ | (936,676 | ) | $ | 8,880,753 |
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 nine month periods ended September 30, 2023 and the year ended December 31, 2022, there were no transfers between the levels.
98 Granite REIT 2023 Third Quarter Report
(c) Risk Management
Foreign exchange risk
As at September 30, 2023, 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 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 September 30, 2023, the Trust’s foreign currency denominated net assets are $6.4 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 $44.1 million and $19.6 million, respectively, to comprehensive income.
Granite REIT 2023 Third Quarter Report 99
18. 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 September 30, 2023 | |||||||||||||||
Granite REIT | Granite GP | Eliminations/ Adjustments | Granite REIT and Granite GP | |||||||||||||
ASSETS | ||||||||||||||||
Non-current assets: | ||||||||||||||||
Investment properties | $8,898,540 | – | – | $8,898,540 | ||||||||||||
Investment in Granite LP(1) | – | 41 | (41 | ) | – | |||||||||||
Other non-current assets | 135,020 | – | – | 135,020 | ||||||||||||
9,033,560 | 41 | (41 | ) | 9,033,560 | ||||||||||||
Current assets: | ||||||||||||||||
Other current assets | 23,961 | – | – | 23,961 | ||||||||||||
Intercompany receivable(2) | – | 17,076 | (17,076 | ) | – | |||||||||||
Cash and cash equivalents | 158,146 | 161 | – | 158,307 | ||||||||||||
Total assets | $9,215,667 | 17,278 | (17,117 | ) | $9,215,828 | |||||||||||
LIABILITIES AND EQUITY | ||||||||||||||||
Non-current liabilities: | ||||||||||||||||
Unsecured debt, net | $2,685,384 | – | – | $2,685,384 | ||||||||||||
Other non-current liabilities | 578,830 | – | – | 578,830 | ||||||||||||
3,264,214 | – | – | 3,264,214 | |||||||||||||
Current liabilities: | ||||||||||||||||
Unsecured debt, net | 399,946 | – | – | 399,946 | ||||||||||||
Intercompany payable(2) | 17,076 | – | (17,076 | ) | – | |||||||||||
Other current liabilities | 132,704 | 17,237 | – | 149,941 | ||||||||||||
Total liabilities | 3,813,940 | 17,237 | (17,076 | ) | 3,814,101 | |||||||||||
Equity: | ||||||||||||||||
Stapled unitholders’ equity | 5,395,490 | 41 | – | 5,395,531 | ||||||||||||
Non-controlling interests | 6,237 | – | (41 | ) | 6,196 | |||||||||||
Total liabilities and equity | $9,215,667 | 17,278 | (17,117 | ) | $9,215,828 |
(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. |
100 Granite REIT 2023 Third Quarter Report
Balance Sheet | As at December 31, 2022 | |||||||||||||||
Granite REIT | Granite GP | Eliminations/ Adjustments | Granite REIT and Granite GP | |||||||||||||
ASSETS | ||||||||||||||||
Non-current assets: | ||||||||||||||||
Investment properties | $8,839,571 | – | – | $8,839,571 | ||||||||||||
Investment in Granite LP(1) | – | 40 | (40 | ) | – | |||||||||||
Other non-current assets | 167,189 | – | – | 167,189 | ||||||||||||
9,006,760 | 40 | (40 | ) | 9,006,760 | ||||||||||||
Current assets: | ||||||||||||||||
Assets held for sale | 41,182 | – | – | 41,182 | ||||||||||||
Other current assets | 97,310 | 21 | – | 97,331 | ||||||||||||
Intercompany receivable(2) | – | 15,594 | (15,594 | ) | – | |||||||||||
Cash and cash equivalents | 135,020 | 61 | – | 135,081 | ||||||||||||
Total assets | $9,280,272 | 15,716 | (15,634 | ) | $9,280,354 | |||||||||||
LIABILITIES AND EQUITY |
| |||||||||||||||
Non-current liabilities: | ||||||||||||||||
Unsecured debt, net | $2,583,930 | – | – | $2,583,930 | ||||||||||||
Other non-current liabilities | 596,759 | – | – | 596,759 | ||||||||||||
3,180,689 | – | – | 3,180,689 | |||||||||||||
Current liabilities: | ||||||||||||||||
Unsecured debt, net | 399,707 | – | – | 399,707 | ||||||||||||
Intercompany payable(2) | 15,594 | – | (15,594 | ) | – | |||||||||||
Other current liabilities | 203,935 | 15,676 | – | 219,611 | ||||||||||||
Total liabilities | 3,799,925 | 15,676 | (15,594 | ) | 3,800,007 | |||||||||||
Equity: | ||||||||||||||||
Stapled unitholders’ equity | 5,475,335 | 40 | – | 5,475,375 | ||||||||||||
Non-controlling interests | 5,012 | – | (40 | ) | 4,972 | |||||||||||
Total liabilities and equity | $9,280,272 | 15,716 | (15,634 | ) | $9,280,354 |
(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. |
Granite REIT 2023 Third Quarter Report 101
Income Statement | Three Months Ended September 30, 2023 | |||||||||||||||
Granite REIT | Granite GP | Eliminations/ Adjustments | Granite REIT and Granite GP Combined | |||||||||||||
Revenue | $131,462 | – | – | $131,462 | ||||||||||||
General and administrative expenses | 8,402 | – | – | 8,402 | ||||||||||||
Interest expense and other financing costs | 18,831 | – | – | 18,831 | ||||||||||||
Other costs and expenses, net | 21,532 | – | – | 21,532 | ||||||||||||
Share of income of Granite LP | – | – | – | – | ||||||||||||
Fair value losses on investment properties, net | 53,200 | – | – | 53,200 | ||||||||||||
Fair value losses on financial instruments, net | 2,520 | – | – | 2,520 | ||||||||||||
Loss on sale of investment properties | 891 | – | – | 891 | ||||||||||||
Income before income taxes | 26,086 | – | – | 26,086 | ||||||||||||
Income tax recovery | (8,071 | ) | – | – | (8,071 | ) | ||||||||||
Net income | 34,157 | – | – | 34,157 | ||||||||||||
Less net income attributable to non-controlling interests | 1,031 | – | – | 1,031 | ||||||||||||
Net income attributable to stapled unitholders | $33,126 | – | – | $33,126 |
Income Statement | Three Months Ended September 30, 2022 | |||||||||||||||
Granite REIT | Granite GP | Eliminations/ Adjustments | Granite REIT and Granite GP Combined | |||||||||||||
Revenue | $111,605 | – | – | $111,605 | ||||||||||||
General and administrative expenses | 6,461 | – | – | 6,461 | ||||||||||||
Interest expense and other financing costs | 12,688 | – | – | 12,688 | ||||||||||||
Other costs and expenses, net | 17,329 | – | – | 17,329 | ||||||||||||
Share of loss (income) of Granite LP | – | 1 | (1 | ) | – | |||||||||||
Fair value losses on investment properties, net | 229,151 | – | – | 229,151 | ||||||||||||
Fair value gains on financial instruments, net | (1,367 | ) | – | – | (1,367 | ) | ||||||||||
Loss before income taxes | (152,657 | ) | (1 | ) | 1 | (152,657 | ) | |||||||||
Income tax recovery | (59,409 | ) | – | – | (59,409 | ) | ||||||||||
Net loss | (93,248 | ) | (1 | ) | 1 | (93,248 | ) | |||||||||
Less net income attributable to non-controlling interests | 12 | – | 1 | 13 | ||||||||||||
Net loss attributable to stapled unitholders | $(93,260 | ) | (1 | ) | – | $(93,261 | ) |
102 Granite REIT 2023 Third Quarter Report
Income Statement | Nine Months Ended September 30, 2023 | |||||||||||||||
Granite REIT | Granite GP | Eliminations/ Adjustments | Granite REIT and Granite GP Combined | |||||||||||||
Revenue | $391,403 | – | – | $391,403 | ||||||||||||
General and administrative expenses | 31,976 | – | – | 31,976 | ||||||||||||
Interest expense and other financing costs | 55,827 | – | – | 55,827 | ||||||||||||
Other costs and expenses, net | 64,507 | – | – | 64,507 | ||||||||||||
Share of (income) loss of Granite LP | – | (1 | ) | 1 | – | |||||||||||
Fair value losses on investment properties, net | 139,747 | – | – | 139,747 | ||||||||||||
Fair value losses on financial instruments, net | 1,869 | – | – | 1,869 | ||||||||||||
Loss on sale of investment properties | 1,496 | – | – | 1,496 | ||||||||||||
Income before income taxes | 95,981 | 1 | (1 | ) | 95,981 | |||||||||||
Income tax recovery | (10,513 | ) | – | – | (10,513 | ) | ||||||||||
Net income | 106,494 | 1 | (1 | ) | 106,494 | |||||||||||
Less net income attributable to non-controlling interests | 1,151 | – | (1 | ) | 1,150 | |||||||||||
Net income attributable to stapled unitholders | $105,343 | 1 | – | $105,344 |
Income Statement | Nine Months Ended September 30, 2022 | |||||||||||||||
Granite REIT | Granite GP | Eliminations/ Adjustments | Granite REIT and Granite GP Combined | |||||||||||||
Revenue | $329,965 | – | – | $329,965 | ||||||||||||
General and administrative expenses | 20,921 | – | – | 20,921 | ||||||||||||
Interest expense and other financing costs | 34,279 | – | – | 34,279 | ||||||||||||
Other costs and expenses, net | 52,248 | – | – | 52,248 | ||||||||||||
Share of (income) loss of Granite LP | – | (3 | ) | 3 | – | |||||||||||
Fair value gains on investment properties, net | (10,193 | ) | – | – | (10,193 | ) | ||||||||||
Fair value gains on financial instruments, net | (9,301 | ) | – | – | (9,301 | ) | ||||||||||
Loss on sale of investment properties | 676 | – | – | 676 | ||||||||||||
Income before income taxes | 241,335 | 3 | (3 | ) | 241,335 | |||||||||||
Income tax recovery | (40,812 | ) | – | – | (40,812 | ) | ||||||||||
Net income | 282,147 | 3 | (3 | ) | 282,147 | |||||||||||
Less net income attributable to non-controlling interests | 40 | – | (3 | ) | 37 | |||||||||||
Net income attributable to stapled unitholders | $282,107 | 3 | – | $282,110 |
Granite REIT 2023 Third Quarter Report 103
Statement of Cash Flows | Three Months Ended September 30, 2023 | |||||||||||||||
Granite REIT | Granite GP | Eliminations/ Adjustments | Granite REIT and Granite GP Combined | |||||||||||||
OPERATING ACTIVITIES | ||||||||||||||||
Net income | $34,157 | – | – | $34,157 | ||||||||||||
Items not involving operating cash flows | 44,654 | – | – | 44,654 | ||||||||||||
Changes in working capital balances | (430 | ) | 76 | – | (354 | ) | ||||||||||
Other operating activities | 6,820 | – | – | 6,820 | ||||||||||||
Cash provided by operating activities | 85,201 | 76 | – | 85,277 | ||||||||||||
INVESTING ACTIVITIES | ||||||||||||||||
Acquisitions, deposits and transactions costs, net | (137 | ) | – | – | (137 | ) | ||||||||||
Proceeds from disposal, net | 19,684 | – | – | 19,684 | ||||||||||||
Additions to income-producing properties | (10,922 | ) | – | – | (10,922 | ) | ||||||||||
Additions to properties under development | (14,794 | ) | – | – | (14,794 | ) | ||||||||||
Construction funds in escrow | (82 | ) | – | – | (82 | ) | ||||||||||
Other investing activities | (1,081 | ) | – | – | (1,081 | ) | ||||||||||
Cash used in investing activities | (7,332 | ) | – | – | (7,332 | ) | ||||||||||
FINANCING ACTIVITIES | ||||||||||||||||
Distributions paid | (51,002 | ) | – | – | (51,002 | ) | ||||||||||
Other financing activities | 10,697 | – | – | 10,697 | ||||||||||||
Cash used in financing activities | (40,305 | ) | – | – | (40,305 | ) | ||||||||||
Effect of exchange rate changes | 1,503 | – | – | 1,503 | ||||||||||||
Net increase in cash and cash equivalents during the period | $39,067 | 76 | – | $39,143 |
104 Granite REIT 2023 Third Quarter Report
Statement of Cash Flows | Three Months Ended September 30, 2022 | |||||||||||||||
Granite REIT | Granite GP | Eliminations/ Adjustments | Granite REIT and Granite GP Combined | |||||||||||||
OPERATING ACTIVITIES | ||||||||||||||||
Net loss | $(93,248 | ) | (1 | ) | 1 | $(93,248 | ) | |||||||||
Items not involving operating cash flows | 165,349 | 1 | (1 | ) | 165,349 | |||||||||||
Changes in working capital balances | 9,750 | 34 | – | 9,784 | ||||||||||||
Other operating activities | (3,611 | ) | – | – | (3,611 | ) | ||||||||||
Cash provided by operating activities | 78,240 | 34 | – | 78,274 | ||||||||||||
INVESTING ACTIVITIES | ||||||||||||||||
Acquisitions, deposits and transactions costs, net | (100,824 | ) | – | – | (100,824 | ) | ||||||||||
Additions to income-producing properties | (23,509 | ) | – | – | (23,509 | ) | ||||||||||
Additions to properties under development | (44,256 | ) | – | – | (44,256 | ) | ||||||||||
Construction funds in escrow | (896 | ) | – | – | (896 | ) | ||||||||||
Other investing activities | (10,323 | ) | – | – | (10,323 | ) | ||||||||||
Cash used in investing activities | (179,808 | ) | – | – | (179,808 | ) | ||||||||||
FINANCING ACTIVITIES | ||||||||||||||||
Distributions paid | (50,686 | ) | – | – | (50,686 | ) | ||||||||||
Other financing activities | 258,733 | – | – | 258,733 | ||||||||||||
Cash provided by financing activities | 208,047 | – | – | 208,047 | ||||||||||||
Effect of exchange rate changes | 10,188 | – | – | 10,188 | ||||||||||||
Net increase in cash and cash equivalents during the period | $116,667 | 34 | – | $116,701 |
Granite REIT 2023 Third Quarter Report 105
Statement of Cash Flows | Nine Months Ended September 30, 2023 | |||||||||||||||
Granite REIT | Granite GP | Eliminations/ Adjustments | Granite REIT and Granite GP Combined | |||||||||||||
OPERATING ACTIVITIES | ||||||||||||||||
Net income | $106,494 | 1 | (1 | ) | $106,494 | |||||||||||
Items not involving operating cash flows | 126,763 | (1 | ) | 1 | 126,763 | |||||||||||
Changes in working capital balances | (2,619 | ) | 100 | – | (2,519 | ) | ||||||||||
Other operating activities | 6,400 | – | – | 6,400 | ||||||||||||
Cash provided by operating activities | 237,038 | 100 | – | 237,138 | ||||||||||||
INVESTING ACTIVITIES | ||||||||||||||||
Acquisitions, deposits and transactions costs, net | (103,388 | ) | – | – | (103,388 | ) | ||||||||||
Proceeds from disposals, net | 43,782 | – | – | 43,782 | ||||||||||||
Additions to income-producing properties | (60,586 | ) | – | – | (60,586 | ) | ||||||||||
Additions to properties under development | (57,919 | ) | – | – | (57,919 | ) | ||||||||||
Construction funds released from escrow | 4,805 | – | – | 4,805 | ||||||||||||
Other investing activities | 63,362 | – | – | 63,362 | ||||||||||||
Cash used in investing activities | (109,944 | ) | – | – | (109,944 | ) | ||||||||||
FINANCING ACTIVITIES | ||||||||||||||||
Distributions paid | (152,983 | ) | – | – | (152,983 | ) | ||||||||||
Other financing activities | 49,012 | – | – | 49,012 | ||||||||||||
Cash used in financing activities | (103,971 | ) | – | – | (103,971 | ) | ||||||||||
Effect of exchange rate changes | 3 | – | – | 3 | ||||||||||||
Net increase in cash and cash equivalents during the period | $23,126 | 100 | – | $23,226 |
106 Granite REIT 2023 Third Quarter Report
Statement of Cash Flows | Nine Months Ended September 30, 2022 | |||||||||||||||
Granite REIT | Granite GP | Eliminations/ Adjustments | Granite REIT and Granite GP Combined | |||||||||||||
OPERATING ACTIVITIES | ||||||||||||||||
Net income | $282,147 | 3 | (3 | ) | $282,147 | |||||||||||
Items not involving operating cash flows | (67,885 | ) | (3 | ) | 3 | (67,885 | ) | |||||||||
Changes in working capital balances | 3,835 | (167 | ) | – | 3,668 | |||||||||||
Other operating activities | (5,963 | ) | – | – | (5,963 | ) | ||||||||||
Cash provided by (used in) operating activities | 212,134 | (167 | ) | – | 211,967 | |||||||||||
INVESTING ACTIVITIES | ||||||||||||||||
Acquisitions, deposits and transactions costs, net | (493,366 | ) | – | – | (493,366 | ) | ||||||||||
Proceeds from disposals, net | 63,933 | – | – | 63,933 | ||||||||||||
Additions to income-producing properties | (34,430 | ) | – | – | (34,430 | ) | ||||||||||
Additions to properties under development | (164,992 | ) | – | – | (164,992 | ) | ||||||||||
Construction funds in escrow | (3,981 | ) | – | – | (3,981 | ) | ||||||||||
Other investing activities | (42,840 | ) | – | – | (42,840 | ) | ||||||||||
Cash used in investing activities | (675,676 | ) | – | – | (675,676 | ) | ||||||||||
FINANCING ACTIVITIES | ||||||||||||||||
Distributions paid | (152,598 | ) | – | – | (152,598 | ) | ||||||||||
Other financing activities | 480,398 | – | – | 480,398 | ||||||||||||
Cash provided by financing activities | 327,800 | – | – | 327,800 | ||||||||||||
Effect of exchange rate changes | 7,697 | – | – | 7,697 | ||||||||||||
Net decrease in cash and cash equivalents during the period | $(128,045 | ) | (167) | – | $(128,212 | ) |
Granite REIT 2023 Third Quarter Report 107
19. 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 September 30, 2023, the Trust’s contractual commitments totaled $64.9 million which are primarily comprised of costs to complete its ongoing construction and development projects and related tenant improvements.
(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, $131.4 million (US$97.1 million) of bonds were assumed. The authorized amount of the bonds is $140.8 million (US$104.0 million), of which $131.4 million (US$97.1 million) was outstanding as at September 30, 2023. 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.
20. SUBSEQUENT EVENTS
|
(a) On October 12, 2023, Granite completed an offering of $400.0 million aggregate principal amount of 6.074% Series 7 senior unsecured debentures due April 12, 2029 (the “2029 Debentures”). The net proceeds received by Granite after deducting the financing costs totaling $2.4 million were $397.6 million.
On October 12, 2023 Granite also entered into a cross currency interest rate swap to exchange the Canadian dollar denominated principal and interest payments of the 2029 Debentures for Euro denominated payments, resulting in an effective fixed interest rate of 4.9285% for the five and a half year term of the 2029 Debentures.
(b) Subsequent to September 30, 2023, the Trust declared monthly distributions for October 2023 of $17.0 million (note 12).
108 Granite REIT 2023 Third Quarter Report
(c) On November 8, 2023, Granite increased its targeted annualized distribution by 3.125% to $3.30 ($0.2750 per month) per stapled unit from $3.20 ($0.2667 per month) per stapled unit to be effective upon the declaration of the distribution in respect of the month of December 2023 and payable in mid-January 2024.
Granite REIT 2023 Third Quarter Report 109
REIT
Information
Board of Trustees | Officers | Office Location | ||
Kelly Marshall Chairman
Peter Aghar Trustee
Remco Daal Trustee
Kevan Gorrie Trustee
Fern Grodner Trustee
Al Mawani Trustee
Gerald Miller Trustee
Sheila Murray Trustee
Emily Pang Trustee
Jennifer Warren Trustee | Kevan Gorrie President and Chief Executive Officer
Teresa Neto Chief Financial Officer
Lorne Kumer Executive Vice President, Head of Global Real Estate
Michael Ramparas Executive Vice President, Global Real Estate and Head of Investments
Lawrence Clarfield Executive Vice President, General Counsel and Corporate Secretary | 77 King Street West Suite 4010, P.O. Box 159 Toronto-Dominion Centre Toronto, ON M5K 1H1 Phone: (647) 925-7500 Fax: (416) 861-1240
Investor Relations Queries
Kevan Gorrie President and Chief Executive Officer (647) 925-7500
Teresa Neto Chief Financial Officer (647) 925-7560 | ||
Transfer Agents and Registrars | ||||
Canada
Computershare Investor Services Inc. 100 University Avenue, 8th Floor, North Tower Toronto, Ontario, Canada M5J 2Y1 Phone: 1 (800) 564-6253 www.computershare.com | United States
Computershare Trust Company N.A. 462 S. 4th Street Louisville, Kentucky, USA 40202 | |||
Exchange Listings | ||||
Stapled Units | – Toronto Stock Exchange (GRT.UN) and New York Stock Exchange (GRP.U) | |||
Please refer to our website (www.granitereit.com) for information on Granite’s compliance with the corporate governance standards of the New York Stock Exchange and applicable Canadian standards and guidelines. | ||||
Publicly Available Documents | ||||
Copies of the financial statements for the year ended December 31, 2022 are available through the Internet on the Electronic Data Gathering Analysis and Retrieval System (EDGAR), which can be accessed at www.sec.gov, and on the System for Electronic Data Analysis and Retrieval Plus (SEDAR+), which can be accessed at www.sedarplus.ca. Other required securities filings can also be found on EDGAR and SEDAR+. |
110 Granite REIT 2023 Third Quarter Report
Granite REIT
77 King Street West Suite 4010, P.O. Box 159 Toronto-Dominion Centre Toronto, ON M5K 1H1 Phone: (647) 925-7500 Fax: (416) 861-1240 www.granitereit.com |