Granite Announces 2018 Third Quarter Results and Increases its Monthly Distribution

TORONTO, Nov. 6, 2018

"The Granite team continues to successfully execute on our corporate objectives for 2018, including the reduction in Magna concentration and conversely the growth in modern distribution and e‑commerce markets and assets. The sale of the special purpose assets announced so far in 2018 will impact FFO⁽¹⁾ and AFFO⁽²⁾ in the short term, but the resultant liquidity further positions us to successfully capitalize on strategic growth opportunities in our target markets in 2019 consistent with our strategic plan. The announced increase in our distribution to an annualized target of $2.80 per unit for 2019 and longer term target AFFO payout ratio⁽³⁾ of 80% reflect our confidence in achieving those objectives," commented Kevan Gorrie, President and Chief Executive Officer.

HIGHLIGHTS

Highlights for the three month period ended September 30, 2018, including events subsequent to the quarter, are set out below:

• Granite's revenue was $63.8 million in the third quarter of 2018 compared to $60.8 million in the prior year period;
  
  
• Funds from operations ("FFO")⁽¹⁾ was $39.1 million ($0.86 per unit) in the third quarter of 2018 compared to $40.5 million ($0.86 per unit) in the third quarter of 2017, which included $1.6 million ($0.03 per unit) relating to lease termination and close‑out fees in revenue;
  
  
• Adjusted funds from operations ("AFFO")⁽²⁾ was $37.7 million ($0.82 per unit) in the third quarter of 2018 compared to $40.1 million ($0.85 per unit) in the third quarter of 2017;
  
  
• On September 13, 2018, Granite completed the sale of its two U.S. special purpose properties located in Piedmont, South Carolina and Clinton, Tennessee for approximately $271 million that comprised 1.6 million square feet and generated annualized revenue of $18.3 million. Subsequent to its previous announcement on July 30, 2018, Granite consented to the rescission by Magna of its exercise of its right of first refusal to purchase these properties and agreed to complete the sales with the original third party buyer on terms more favourable to Granite. Granite also sold four additional properties (including one subsequent to the third quarter) for approximately $71 million that comprised 0.5 million square feet and generated annualized revenue of $4.7 million;
  
  
• On July 12, 2018, Granite acquired a 0.7 million square foot property in Germany for $82.7 million at an in‑going yield of 5.4% and a weighted average lease term of 4.7 years. During the third quarter, Granite committed to acquire a property under development in the state of Texas, making a US$20.0 million deposit in connection therewith. This commitment to purchase is subject to specific confidentiality provisions and customary closing conditions including certain purchase rights in favour of the tenant and is expected to close concurrently with the lease commencement in the third quarter of 2019 following construction of the building. On November 1, 2018, Granite acquired approximately 13 acres of development land in West Jefferson, Ohio;
  
  
• Effective August 1, 2018, Kevan Gorrie became Granite's new President and Chief Executive Officer;
  
  
• On November 6, 2018, Granite approved an increase to its targeted annualized distribution by 2.9% to $2.80 ($0.233 per month) per stapled unit commencing with the monthly distribution payable in mid‑January 2019, marking its seventh consecutive annual increase and representing a cumulative increase of 40.0% to its distribution; and
  
  
• Granite anticipates that it will declare a special distribution to unitholders in the fourth quarter of 2018 as a result of the increase in taxable income generated by the sale transactions completed during the nine month period ended September 30, 2018 and those anticipated to be completed during the fourth quarter of 2018. Granite intends to make the special distribution payable partially in cash and partially in units, to provide unitholders with cash to fund the additional tax associated with the special distribution, while preserving most of the net cash proceeds generated by the sale transactions for reinvestment in the acquisition and development of real estate properties in keeping with its strategy.

The amount of Granite's special distribution is expected to be approximately $1.20 per unit based on the number of units outstanding as of the date hereof which will be declared payable on or before December 31, 2018 to unitholders of record on the date the distribution becomes payable.

Granite intends to make a portion of the special distribution payable by the issuance of additional units (subject to receipt of all regulatory approvals) based on the closing market price of the units on the record date of the distribution. Immediately following the special distribution, the outstanding units of Granite will be consolidated such that each unitholder will hold, after the consolidation, the same number of units as such unitholder held before the special distribution. The amount of the special distribution payable in units will add to the tax cost basis of unitholders' consolidated units. The remaining portion of the special distribution will be payable in cash to cover any non‑resident withholding taxes or other income tax obligations that may arise for unitholders from the additional taxable income distributed via the special distribution. A further update will be provided when the special distribution is declared including confirmation of the precise amount and mix of consideration of the special distribution.

Granite cautions that the foregoing comments are not intended to be, and should not be construed as, legal or tax advice to any particular unitholder. Granite recommends that unitholders consult their own tax advisors regarding the income tax consequences to them of this anticipated special distribution and related unit consolidation.