Granite Announces 2012 Second Quarter Results

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Aug 08, 2012, 07:01 ET

TORONTO, Aug. 8, 2012 /PRNewswire/ - Granite Real Estate Inc. (TSX: GRT) (NYSE: GRP) ("Granite" or the "Company") today announced its results for the three and six-month periods ended June 30, 2012 and declared a Canadian dollar denominated dividend of $0.50 per share on the Company's Common Shares.

"Our results for the second quarter continue to demonstrate stability in rental revenues and overall cash flows and are in line with our expectations. We are pleased to be reporting for the first time under our new name, Granite Real Estate Inc. In addition, during the quarter we relocated our Canadian and European offices. These steps as well as several others taken during this second quarter are part of our continuing effort to be well-positioned for stability and for future growth" commented Tom Heslip, Chief Executive Officer.

Granite's consolidated results for the three and six-month periods ended June 30, 2012 and 2011 are summarized below (all figures are in Canadian ("Cdn.") dollars):


(in thousands, except per share figures)	Three months ended June 30,		Six months ended June 30,
	2012	2011	2012	2011
		(previously reported in US dollars)		(previously reported in US dollars)
Revenues⁽¹⁾	$ 45,455	$ 44,861	$ 91,115	$ 89,092

Income before income taxes	$ 23,811	$ 15,508	$ 46,732	$ 30,978
Income from continuing operations⁽¹⁾⁽³⁾	18,707	26,362	37,270	39,051
Income from discontinued operations⁽¹⁾	--	83,684	--	94,449
Net income	$ 18,707	$ 110,046	$ 37,270	$ 133,500

Diluted earnings per share from:
- continuing operations	$ 0.40	$ 0.56	$ 0.79	$ 0.83
- discontinued operations	--	1.77	--	2.01
Diluted earnings per share	$ 0.40	$ 2.33	$ 0.79	$ 2.84

Funds from operations ("FFO")⁽²⁾	$ 29,374	$ 36,938	$ 58,780	$ 60,074
Diluted FFO per share ⁽²⁾	$ 0.63	$ 0.78	$ 1.25	$ 1.28

__________________________

(1)	Following the close of business on June 30, 2011, the Racing & Gaming Business, substantially all of the Company's lands held for development, a property in the United States and an income-producing property in Canada (the "Arrangement Transferred Assets & Business") were transferred to entities owned by Mr. Frank Stronach and his family (the "Stronach Shareholder") in consideration for the elimination of the Company's dual class share structure (the "Arrangement"). The operating results of the Arrangement Transferred Assets & Business have been presented as discontinued operations. Income from continuing operations pertains to the Company's income-producing property portfolio.

(2)	FFO and diluted FFO per share are measures widely used by analysts and investors in evaluating the operating performance of real estate companies. However, FFO does not have a standardized meaning under U.S. generally accepted accounting principles and therefore may not be comparable to similar measures presented by other companies. The Company determines FFO using the definition prescribed in the United States by the National Association of Real Estate Investment Trusts®. For a reconciliation of FFO to income from continuing operations, please refer to the section titled "Reconciliation of Funds from Operations to Income from Continuing Operations".

(3)	Income from continuing operations for the three and six-month period ended June 30, 2011 includes the recovery of $12.9 million in income tax resulting from an internal amalgamation that was set aside and cancelled by the courts.

CURRENCY CHANGE FOR FINANCIAL REPORTING

The consolidated financial statements for periods prior to January 1, 2012 were reported using the U.S. dollar. As a result of the Company's shareholder base becoming increasingly Canadian and the Company's stated intention of becoming a Canadian Real Estate Investment Trust ("REIT"), and to mitigate the impact of foreign exchange fluctuations on our reported results, effective January 1, 2012, the Company's reporting currency was changed to the Cdn. dollar. All comparative financial information contained in this press release, the unaudited interim consolidated financial statements and Management's Discussion and Analysis for the three and six-month periods ended June 30, 2012, has been recast to reflect the Company's results as if the information had been historically reported in Cdn. dollars. As a result of the change in reporting currency, dividends are declared in Cdn. dollars. Please refer to the section titled "Dividends". The Company continues to report in accordance with U.S. generally accepted accounting principles.

GRANITE'S CONSOLIDATED FINANCIAL RESULTS

The results of operations of the Company for the three and six-month periods ended June 30, 2012 and 2011 include those from continuing operations and discontinued operations.

Three-Month Period Ended June 30, 2012

Continuing Operations

For the three-month period ended June 30, 2012, rental revenue increased by $0.6 million from $44.9 million in the second quarter of 2011 to $45.5 million in the second quarter of 2012 primarily due to completed projects coming on-stream and the additional rent earned from contractual rent increases partially offset by the unfavourable effects of changes in foreign currency exchange rates.

The Company's income from continuing operations was $18.7 million in the second quarter of 2012 compared to $26.4 million in the prior year period. Income from continuing operations in the second quarter of 2011 includes the recovery of $12.9 million in income tax resulting from an internal amalgamation undertaken in 2010 that was set aside and cancelled by the Ontario Superior Court of Justice. Excluding the $12.9 million recovery of income tax, income from continuing operations increased by $5.2 million primarily due to (i) an increase in rental revenue of $0.6 million, (ii) a decrease in general and administrative expenses of $5.2 million (primarily due to reduced insurance expense and compensation expense to former executives of the Company as well as the settlement of an outstanding legal proceeding in 2011), (iii) an increase in foreign exchange gains of $0.5 million and (iv) a decrease in the write-down of a long-lived asset of $2.7 million. Partially offsetting these increases in income from continuing operations are (i) increases in property operating costs of $0.5 million, (ii) increased net interest expense of $0.2 million and (iii) an increase in income tax expense of $3.1 million excluding the income tax recovery noted above.

FFO for the second quarter of 2012 decreased $7.6 million from $36.9 million in the prior year period to $29.4 million in the current period primarily due to lower income from continuing operations of $7.7 million.

Discontinued Operations

For the three-month period ended June 30, 2012, the Company's results of operations were not impacted by the Arrangement Transferred Assets & Business as they were transferred to the Stronach Shareholder effective June 30, 2011. Income from discontinued operations for the three-month period ended June 30, 2011 of $83.7 million is primarily comprised of the net gain on the disposal of the Arrangement Transferred Assets & Business of $87.4 million.

Six-Month Period Ended June 30, 2012

Continuing Operations

For the six-month period ended June 30, 2012, rental revenue increased by $2.0 million from $89.1 million in 2011 to $91.1 million in 2012 primarily due to completed projects coming on-stream, the additional rent earned from contractual rent increases and renewals and re-leasing of income-producing properties partially offset by the unfavourable effects of changes in foreign currency exchange rates.

The Company's income from continuing operations was $37.3 million in the six-month period ended June 30, 2012 compared to $39.1 million in the prior year period. Excluding the recovery in the second quarter of 2011 of income tax of $12.9 million noted above, income from continuing operations increased by $11.1 million primarily due to (i) an increase in rental revenue of $2.0 million, (ii) a reduction in general and administrative expenses of $11.8 million (primarily related to reduced advisory costs, decreased insurance expense, decreased compensation expense to former executives of the Company and higher director fees in 2011 due to the Arrangement), (iii) an increase in foreign exchange gains of $0.8 million and (iv) the decrease in the write-down of a long-lived asset of $2.7 million. Partially offsetting these increases are (i) an increase of $0.9 million in property operating costs, (ii) an increase of $0.5 million in depreciation and amortization expense and (iii) an increase of income tax expense of $4.7 million excluding the income tax recovery noted above.

FFO for the six-month period ended June 30, 2012 decreased $1.3 million from $60.1 million in the prior year period to $58.8 million primarily due to the reduction in income from continuing operations of $1.8 million partially offset by the increased add back of depreciation and amortization expense of $0.5 million.

Discontinued Operations

Income from discontinued operations for the six-month period ended June 30, 2011 of $94.4 million is primarily comprised of the net gain on the disposal of the Arrangement Transferred Assets & Business of $87.4 million.

Net Income

Three-Month Period Ended June 30, 2012

Net income of $18.7 million for the second quarter of 2012 decreased by $91.3 million from $110.0 million in the prior year period. The decrease was due to the reductions in income from discontinued operations of $83.7 million and income from continuing operations of $7.7 million.

Six-Month Period Ended June 30, 2012

Net income for the six-month period ended June 30, 2012 decreased by $96.2 million to $37.3 million from $133.5 million in the prior year period. The decrease was due to the reductions in income from discontinued operations of $94.4 million and income from continuing operations of $1.8 million.

A more detailed discussion of Granite's consolidated financial results for the three and six-month periods ended June 30, 2012 and 2011 is contained in the Company's Management's Discussion and Analysis of Results of Operations and Financial Position and the unaudited interim consolidated financial statements and notes thereto, which are available through the internet on Canadian Securities Administrators' Systems for Electronic Document Analysis and Retrieval (SEDAR) and can be accessed at www.sedar.com and on the United States Securities and Exchange Commission's Electronic Data Gathering, Analysis and Retrieval System (EDGAR) which can be accessed at www.sec.gov.

RECONCILIATION OF FUNDS FROM OPERATIONS TO INCOME FROM CONTINUING OPERATIONS


	Three months ended June 30,		Six months ended June 30,
(in thousands, except per share information)	2012	2011	2012	2011
		(previously reported in US dollars)		(previously reported in US dollars)
Income from continuing operations	$ 18,707	$ 26,362	$ 37,270	$ 39,051
Add back depreciation and amortization	10,667	10,576	21,510	21,023
Funds from operations	$ 29,374	$ 36,938	$ 58,780	$ 60,074

Basic and diluted funds from operations per share	$ 0.63	$ 0.78	$ 1.25	$ 1.28

Basic number of shares outstanding	46,880	47,128	46,882	46,919
Diluted number of shares outstanding	46,896	47,165	46,902	47,063

DIVIDENDS

Granite's Board of Directors has declared a Cdn. dollar denominated dividend of $0.50 per share on the Company's Common Shares for the second quarter ended June 30, 2012. The dividend is payable on or about September 13, 2012 to shareholders of record at the close of business on August 24, 2012. The Common Shares will begin trading on an ex-dividend basis at the opening of trading on August 22, 2012.

Unless indicated otherwise, Granite has designated the entire amount of all past and future taxable dividends paid since January 1, 2006 to be an "eligible dividend" for purposes of the Income Tax Act (Canada).

CONFERENCE CALL

Granite will hold a conference call on Thursday, August 9, 2012 at 8:30 a.m. Eastern time. The number to use for this call is 1-800-768-6483. Overseas callers should use +1-416-981-9026. Please call in at least 10 minutes prior to start time. The conference call will be chaired by Tom Heslip, Chief Executive Officer. For anyone unable to listen to the scheduled call, the rebroadcast numbers will be: North America - 1-800-558-5253 and Overseas - +1-416-626-4100 (enter reservation number 21600234) and will be available until Thursday, August 16, 2012.

ABOUT GRANITE

Granite is a Canadian-based real estate company engaged in the ownership and management of predominantly industrial properties in Canada, the United States, Mexico and Europe. The Company owns and manages approximately 28 million square feet in 105 rental income properties. Our tenant base currently includes operating subsidiaries of Magna International Inc. (together "Magna") as our largest tenants, together with tenants from other industries.

OTHER INFORMATION

Additional property statistics have been posted to our website at http://www.graniterealestate.com/uploads/File/propertystatistics.pdf. Copies of financial data and other publicly filed documents are available through the internet on Canadian Securities Administrators' Systems for Electronic Document Analysis and Retrieval (SEDAR) which can be accessed at www.sedar.com and on the United States Securities and Exchange Commission's Electronic Data Gathering, Analysis and Retrieval System (EDGAR) which can be accessed at www.sec.gov. For further information about Granite, please see our website at www.graniterealestate.com.

FORWARD-LOOKING STATEMENTS

This press release may contain statements that, to the extent they are not recitations of historical fact, constitute "forward-looking statements" within the meaning of applicable securities legislation, including the United States Securities Act of 1933 and the United States Securities Exchange Act of 1934. Forward-looking statements may include, among others, statements regarding the Company's future plans, goals, strategies, intentions, beliefs, estimates, costs, objectives, economic performance or expectations, or the assumptions underlying any of the foregoing. In particular, this press release contains forward-looking statements regarding a strategic plan and a proposed conversion to a REIT. Words such as "may", "would", "could", "will", "likely", "expect", "anticipate", "believe", "intend", "plan", "forecast", "project", "estimate" and similar expressions are used to identify forward-looking statements. Forward-looking statements should not be read as guarantees of future events, performance or results and will not necessarily be accurate indications of whether or the times at or by which such future performance will be achieved. Undue reliance should not be placed on such statements. In particular, Granite cautions that the timing or completion of the strategic plan and the timing or completion of the REIT conversion process cannot be predicted with certainty, and there can be no assurance at this time that all required or desirable approvals and consents to effect the plan and a REIT conversion will be obtained in a timely manner or at all. Forward-looking statements are based on information available at the time and/or management's good faith assumptions and analyses made in light of our perception of historical trends, current conditions and expected future developments, as well as other factors we believe are appropriate in the circumstances, and are subject to known and unknown risks, uncertainties and other unpredictable factors, many of which are beyond the Company's control, that could cause actual events or results to differ materially from such forward-looking statements. Important factors that could cause such differences include, but are not limited to, the risk of changes to tax or other laws that may adversely affect the REIT conversion; inability of Granite to implement a suitable structure for the REIT conversion; the inability to obtain all required consents and approvals for the REIT conversion; and the risks set forth in the "Risks Factors" section in the Company's Annual Information Form for 2011, filed on SEDAR at www.sedar.com and attached as Exhibit 1 to the Company's Annual Report on Form 40-F for the year ended December 31, 2011, which investors are strongly advised to review. The "Risks Factors" section also contains information about the material factors or assumptions underlying such forward-looking statements. Forward-looking statements speak only as of the date the statements were made and unless otherwise required by applicable securities laws, the Company expressly disclaims any intention and undertakes no obligation to update or revise any forward-looking statements contained in this press release to reflect subsequent information, events or circumstances or otherwise.

SOURCE Granite Real Estate Inc.