EXHIBIT 2

---



GRAPHIC

Audited Combined Financial Statements of
Granite Real Estate Investment Trust and
Granite REIT Inc. For the year ended December 31, 2013

Granite REIT  2013 33

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MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL REPORTING

---

Management of Granite Real Estate Investment Trust and Granite REIT Inc. (collectively, the "Trust") is responsible for the preparation and
presentation of the combined financial statements and all information included in the 2013 Annual Report. The combined financial statements were prepared by management in accordance with International
Financial Reporting Standards as issued by the International Accounting Standards Board and where appropriate, reflect estimates based on management's best judgement in the circumstances. Financial
information as presented elsewhere in the 2013 Annual Report has been prepared by management to ensure consistency with information contained in the combined financial statements. The combined
financial statements have been audited by independent auditors and reviewed by the Audit Committees and approved by both the Board of Trustees of Granite Real Estate Investment Trust and the Board of
Directors of Granite REIT Inc.

Management
is responsible for the development and maintenance of systems of internal accounting and administrative cost controls of high quality, within reasonable cost. Such systems are designed to
provide reasonable assurance that the financial information is accurate, relevant and reliable and that the Trust's assets are appropriately accounted for and adequately safeguarded. Management has
determined that, as at December 31, 2013 and based on the framework set forth inInternal Control  Integrated Framework
(1992)issued by the Committee of Sponsoring Organizations of the Treadway Commission, internal control over financial reporting was effective. The Trust's Chief Executive
Officer and Chief Financial Officer, in compliance with Section 302 of the U.S. Sarbanes-Oxley Act of 2002 ("SOX"), have provided a SOX-related certification in connection with the
Trust's annual disclosure document in the U.S. (Form 40-F) to the U.S. Securities and Exchange Commission. In accordance with Multilateral Instrument 52-109, a
similar certification has been provided to the Canadian Securities Administrators.

The
Trust's Audit Committees are appointed by their respective Boards annually and are comprised solely of outside independent Directors or Trustees. The Audit Committees meet periodically with
management, as well as with the independent auditors, to satisfy themselves that each is properly discharging its responsibilities to review the combined financial statements and the independent
auditors' report and to discuss significant financial reporting issues and auditing matters. The Audit Committees report their findings to the Boards for consideration when approving the combined
financial statements for issuance to the stapled unitholders.

The
combined financial statements and the effectiveness of internal control over financial reporting have been audited by Deloitte LLP, the independent auditors, in accordance with Canadian
generally accepted auditing standards and the standards of the Public Company Accounting Oversight Board (United States) on behalf of the stapled unitholders. The Auditors' Reports outline the
nature of their examinations and their opinions on the combined financial statements of the Trust and the effectiveness of the Trust's internal control over financial reporting. The independent
auditors have full and unrestricted access to the Audit Committees.

|GRAPHIC                 | GRAPHIC                
|----------------------- | -----------------------
|THOMAS HESLIP           | MICHAEL FORSAYETH      
|Chief Executive Officer | Chief Financial Officer

Toronto,
Canada,
March 5, 2014

34 Granite REIT  2013

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INDEPENDENT AUDITORS' REPORT OF REGISTERED PUBLIC ACCOUNTING FIRM

---

To the Board of Trustees and Unitholders of Granite Real Estate Investment Trust 
and the Board of Directors and Shareholders of Granite REIT Inc.

We
have audited the accompanying combined financial statements of Granite Real Estate Investment Trust and Granite REIT Inc. (collectively, the "Trust"), which comprise the combined balance
sheets as at December 31, 2013, December 31, 2012, and January 1, 2012, and the combined statements of income, combined statements of comprehensive income, combined statements of
unitholders' or shareholders' equity and combined statements of cash flows for the years ended December 31, 2013 and December 31, 2012, and the notes to the combined financial
statements.

Management's Responsibility for the Combined Financial Statements

Management is responsible for the preparation and fair presentation of these combined financial statements in accordance with International Financial Reporting Standards as
issued by the International Accounting Standards Board, and for such internal control as management determines is necessary to enable the preparation of combined financial statements that are free
from material misstatement, whether due to fraud or error.

Auditor's Responsibility

Our responsibility is to express an opinion on these combined financial statements based on our audits. We conducted our audits in accordance with Canadian generally accepted
auditing standards and the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we comply with ethical requirements and plan and perform the
audit to obtain reasonable assurance about whether the combined financial statements are free from material misstatement.

An
audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the combined financial statements. The procedures selected depend on the auditor's judgment,
including the assessment of the risks of material misstatement of the combined financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal
control relevant to the entity's preparation and fair presentation of the combined financial statements in order to design audit procedures that are appropriate in the circumstances. An audit also
includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the combined
financial statements.

We
believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the combined financial statements present fairly, in all material respects, the financial position of the Trust as at December 31, 2013,
December 31, 2012 and January 1, 2012 and its financial performance and its cash flows for the years ended December 31, 2013 and December 31, 2012 in accordance with
International Financial Reporting Standards as issued by the International Accounting Standards Board.

Other Matter

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Trust's internal control over financial
reporting as of December 31, 2013, based on the criteria established inInternal Control  Integrated Framework
(1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 5, 2014 expressed an unqualified opinion on the Trust's
internal control over financial reporting.

LOGO

Chartered
Professional Accountants, Chartered Accountants
Licensed Public Accountants
March 5, 2014
Toronto, Canada

Granite REIT  2013 35

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INDEPENDENT AUDITORS' REPORT ON INTERNAL CONTROLS UNDER
THE STANDARDS OF THE PUBLIC COMPANY ACCOUNTING OVERSIGHT BOARD
(UNITED STATES)

---

To the Board of Trustees and Unitholders of Granite Real Estate Investment Trust 
and the Board of Directors and Shareholders of Granite REIT Inc.

We
have audited the internal control over financial reporting of Granite Real Estate Investment Trust and Granite REIT Inc. (collectively, the "Trust") as of December 31, 2013, based on
the criteria established inInternal Control  Integrated Framework (1992)issued by the Committee of Sponsoring
Organizations of the Treadway Commission. The Trust's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of
internal control over financial reporting, included in the accompanying Management's Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Trust's
internal control over financial reporting based on our audit.

We
conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over
financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing
such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A
company's internal control over financial reporting is a process designed by, or under the supervision of, the company's principal executive and principal financial officers, or persons performing
similar functions, and effected by the company's board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board. A company's internal
control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions
and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with
International Financial Reporting Standards as issued by the International Accounting Standards Board, and that receipts and expenditures of the company are being made only in accordance with
authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the
company's assets that could have a material effect on the financial statements.

Because
of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to
error or fraud may
not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that
the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. In our opinion, the Trust maintained, in all
material respects, effective internal control over financial reporting as of December 31, 2013, based on the criteria established inInternal
Control  Integrated Framework (1992)issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We
have also audited, in accordance with Canadian generally accepted auditing standards and the standards of the Public Company Accounting Oversight Board (United States), the combined
financial statements of the Trust as of and for the year ended December 31, 2013 of the Trust and our report dated March 5, 2014 expressed an unqualified opinion on those financial
statements.

LOGO

Chartered
Professional Accountants, Chartered Accountants
Licensed Public Accountants
March 5, 2014
Toronto, Canada

36 Granite REIT  2013

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Combined Balance Sheets(Canadian dollars in thousands)

|As at                                                              |  | Note |  | December 31,
2013 |           | December 31,
2012 |   | January 1,
2012
|------------------------------------------------------------------ |  | ---- |  | ----------------- | --------- | ----------------- | - | ---------------
|
|ASSETS                                                             |  |      |  |                   |           |                   |   |                
|Non-current assets:                                                |  |      |  |                   |           |                   |   |                
|Investment properties                                              |  | 5    |  | $                 | 2,351,897 |                   | $ | 1,943,697      
|Deferred tax assets                                                |  | 12   |  |                   | 8,173     |                   |   |               
|Note receivable                                                    |  | 6    |  |                   |          |                   |   |               
|Fixed assets, net                                                  |  |      |  |                   | 1,938     |                   |   | 1,837          
|Other assets                                                       |  | 7    |  |                   | 1,958     |                   |   | 320            
|                                                                   |  |      |  |                   |           |                   |   |                
|                                                                   |  |      |  |                   | 2,363,966 |                   |   | 1,945,854      
|Current assets:                                                    |  |      |  |                   |           |                   |   |                
|Current portion of notes receivable                                |  | 6    |  |                   |          |                   |   | 2,612          
|Accounts receivable                                                |  |      |  |                   | 2,491     |                   |   | 3,662          
|Income taxes receivable                                            |  | 12   |  |                   | 930       |                   |   | 2,622          
|Prepaid expenses and other                                         |  |      |  |                   | 1,366     |                   |   | 745            
|Restricted cash                                                    |  | 4    |  |                   | 4,360     |                   |   | 522            
|Cash and cash equivalents                                          |  |      |  |                   | 95,520    |                   |   | 51,073         
|                                                                   |  |      |  |                   |           |                   |   |                
|Total assets                                                       |  |      |  | $                 | 2,468,633 |                   | $ | 2,007,090      
|                                                                   |  |      |  |                   |           |                   |   |                
|LIABILITIES AND STAPLED UNITHOLDERS' OR SHAREHOLDERS' EQUITY       |  |      |  |                   |           |                   |   |                
|Non-current liabilities:                                           |  |      |  |                   |           |                   |   |                
|Unsecured debentures, net                                          |  | 8    |  | $                 | 462,070   |                   | $ | 263,589        
|Cross Currency Interest Rate Swap                                  |  | 8    |  |                   | 11,003    |                   |   |               
|Secured long-term debt                                             |  | 9    |  |                   | 41,856    |                   |   |               
|Deferred tax liabilities                                           |  | 12   |  |                   | 166,622   |                   |   | 185,215        
|Contingent consideration                                           |  | 4    |  |                   | 3,777     |                   |   |               
|                                                                   |  |      |  |                   |           |                   |   |                
|                                                                   |  |      |  |                   | 685,328   |                   |   | 448,804        
|Current liabilities:                                               |  |      |  |                   |           |                   |   |                
|Deferred revenue                                                   |  |      |  |                   | 5,194     |                   |   | 4,494          
|Bank indebtedness                                                  |  | 10   |  |                   | 53,180    |                   |   |               
|Accounts payable and accrued liabilities                           |  | 11   |  |                   | 33,178    |                   |   | 25,955         
|Distributions payable                                              |  | 14   |  |                   | 8,591     |                   |   |               
|Income taxes payable                                               |  | 12   |  |                   | 6,652     |                   |   | 11,984         
|                                                                   |  |      |  |                   |           |                   |   |                
|Total liabilities                                                  |  |      |  |                   | 792,123   |                   |   | 491,237        
|                                                                   |  |      |  |                   |           |                   |   |                
|Equity:                                                            |  |      |  |                   |           |                   |   |                
|Stapled unitholders' or shareholders' equity                       |  |      |  |                   | 1,671,227 |                   |   | 1,514,812      
|Non-controlling interests                                          |  |      |  |                   | 5,283     |                   |   | 1,041          
|                                                                   |  |      |  |                   |           |                   |   |                
|Total equity                                                       |  |      |  |                   | 1,676,510 |                   |   | 1,515,853      
|                                                                   |  |      |  |                   |           |                   |   |                
|Total liabilities and stapled unitholders' or shareholders' equity |  |      |  | $                 | 2,468,633 |                   | $ | 2,007,090      
|                                                                   |  |      |  |                   |           |                   |   |                
|Commitments and contingencies (note 23)                            |  |      |  |                   |           |                   |   |                
|See accompanying notes                                             |  |      |  |                   |           |                   |   |                

| |  | On behalf of the Boards:              |  |                                    
| |  | ------------------------------------- |  | -----------------------------------
| |  |                                       |  |                                    
| |  | /s/G. WESLEY VOORHEISDirector/Trustee |  | /s/GERALD J. MILLERDirector/Trustee

Granite REIT  2013 37

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Combined Statements of Income(Canadian dollars in thousands, except per unit/share figures)

|Years ended December 31,                                                                                                                          |                              | Note |     | 2013 |         | 2012  |  
|------------------------------------------------------------------------------------------------------------------------------------------------- | ---------------------------- | ---- | --- | ---- | ------- | ----- | -
|
|Revenues                                                                                                                                          |                              |      |     |      |         |       |  
|Rental revenue and tenant recoveries                                                                                                              |                              |      |     | $    | 203,247 |       | $
|Operating costs and expenses (income)                                                                                                             |                              |      |     |      |         |       |  
|Property operating costs                                                                                                                          |                              |      |     |      |         |       |  
|                                                                                                                                                  | Non-recoverable from tenants |      | 15  | (a)  |         | 4,427 |  
|                                                                                                                                                  | Recoverable from tenants     |      | 15  | (a)  |         | 1,147 |  
|General and administrative                                                                                                                        |                              | 15   | (b) |      | 27,313  |       |  
|Depreciation and amortization                                                                                                                     |                              |      |     |      | 454     |       |  
|Interest expense and other financing costs, net                                                                                                   |                              | 15   | (c) |      | 20,585  |       |  
|Foreign exchange losses (gains), net                                                                                                              |                              |      |     |      | 13      |       |  
|                                                                                                                                                  |                              |      |     |      |         |       |  
|Income before fair value changes, acquisition transaction costs, gain on Meadows holdback, loss on sale of investment properties and income taxes |                              |      |     |      | 149,308 |       |  
|Fair value gains (losses) on investment properties, net                                                                                           |                              | 5    |     |      | (25,224 | )     |  
|Fair value gains (losses) on financial instruments                                                                                                |                              | 15   | (d) |      | 72      |       |  
|Acquisition transaction costs                                                                                                                     |                              | 4    | (c) |      | (14,246 | )     |  
|Gain on Meadows holdback                                                                                                                          |                              | 6    |     |      | 5,143   |       |  
|Loss on sale of investment properties                                                                                                             |                              | 5    |     |      | (1,122  | )     |  
|                                                                                                                                                  |                              |      |     |      |         |       |  
|Income before income taxes                                                                                                                        |                              |      |     |      | 113,931 |       |  
|Income tax expense (recovery)                                                                                                                     |                              | 12   |     |      | (31,335 | )     |  
|                                                                                                                                                  |                              |      |     |      |         |       |  
|Net income                                                                                                                                        |                              |      |     | $    | 145,266 |       | $
|                                                                                                                                                  |                              |      |     |      |         |       |  
|Net income attributable to:                                                                                                                       |                              |      |     |      |         |       |  
|Stapled unitholders or common shareholders                                                                                                        |                              |      |     | $    | 145,031 |       | $
|Non-controlling interests                                                                                                                         |                              |      |     |      | 235     |       |  
|                                                                                                                                                  |                              |      |     |      |         |       |  
|                                                                                                                                                  |                              |      |     | $    | 145,266 |       | $
|                                                                                                                                                  |                              |      |     |      |         |       |  
|Net income per unit or share attributable to stapled unitholders                                                                                  |                              |      |     |      |         |       |  
|Basic and diluted                                                                                                                                 |                              | 17   |     | $    | 3.09    |       | $
|                                                                                                                                                  |                              |      |     |      |         |       |  

See accompanying notes

38 Granite REIT  2013

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Combined Statements of Comprehensive Income(Canadian dollars in thousands)

|Years ended December 31,                |                                                                                                       | Note |   | 2013 |         | 2012    |  
|--------------------------------------- | ----------------------------------------------------------------------------------------------------- | ---- | - | ---- | ------- | ------- | -
|
|Net income                              |                                                                                                       |      |   | $    | 145,266 |         | $
|Other comprehensive income (loss):      |                                                                                                       |      |   |      |         |         |  
|                                        | Foreign currency translation adjustment                                                               |      |   |      |         | 126,527 |  
|                                        | Unrealized loss on Cross Currency Interest Rate Swap                                                  |      | 8 | (c)  |         | (11,490 | )
|                                        | Net foreign exchange loss on net investment hedge, includes income taxes of $0.2 million (2012  nil) |      |   |      |         | (6,992  | )
|                                        |                                                                                                       |      |   |      |         |         |  
|Total other comprehensive income (loss) |                                                                                                       |      |   |      | 108,045 |         |  
|                                        |                                                                                                       |      |   |      |         |         |  
|Comprehensive income                    |                                                                                                       |      |   | $    | 253,311 |         | $
|                                        |                                                                                                       |      |   |      |         |         |  
|Comprehensive income attributable to:   |                                                                                                       |      |   |      |         |         |  
|                                        | Stapled unitholders or common shareholders                                                            |      |   |      | $       | 252,876 |  
|                                        | Non-controlling interests                                                                             |      |   |      |         | 435     |  
|                                        |                                                                                                       |      |   |      |         |         |  
|Comprehensive income                    |                                                                                                       |      |   | $    | 253,311 |         | $
|                                        |                                                                                                       |      |   |      |         |         |  

See accompanying notes

Granite REIT  2013 39

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Combined Statements of Unitholders' or Shareholders' Equity(Canadian dollars in thousands)

|Year Ended December 31, 2013                         |  | Number
of
Units |  | Stapled
Unitholders'
equity |           | Contributed
surplus |   | Deficit |   | Accumulated
other
comprehensive
income (loss) |          | Total |   | Non-
controlling
interests |   | Total |          
|---------------------------------------------------- |  | --------------- |  | --------------------------- | --------- | ------------------- | - | ------- | - | --------------------------------------------- | -------- | ----- | - | -------------------------- | - | ----- | ---------
|Equity at January 1, 2013                            |  | 46,833          |  | $                           | 2,117,256 |                     | $ | 63,168  |   | $                                             | (654,828 | )     | $ | (10,784                    | ) | $     | 1,514,812
|Net income                                           |  |                |  |                             |          |                     |   |        |   |                                               | 145,031  |       |   |                           |   |       | 145,031  
|Other comprehensive income                           |  |                |  |                             |          |                     |   |        |   |                                               |         |       |   | 107,845                    |   |       | 107,845  
|Distributions                                        |  |                |  |                             |          |                     |   |        |   |                                               | (98,922  | )     |   |                           |   |       | (98,922  
|Non-controlling interests recognized                 |  |                |  |                             |          |                     |   |        |   |                                               |         |       |   |                           |   |       |         
|Units issued on exercise of stapled unit options     |  | 105             |  |                             | 3,892     |                     |   |        |   |                                               |         |       |   |                           |   |       | 3,892    
|Units issued on settlement of deferred stapled units |  | 7               |  |                             | 264       |                     |   |        |   |                                               |         |       |   |                           |   |       | 264      
|Reclassification of unit-based awards                |  |                |  |                             |          |                     |   | (1,743  | ) |                                               | 48       |       |   |                           |   |       | (1,695   
|                                                     |  |                 |  |                             |           |                     |   |         |   |                                               |          |       |   |                            |   |       |          
|Equity at December 31, 2013                          |  | 46,945          |  | $                           | 2,121,412 |                     | $ | 61,425  |   | $                                             | (608,671 | )     | $ | 97,061                     |   | $     | 1,671,227
|                                                     |  |                 |  |                             |           |                     |   |         |   |                                               |          |       |   |                            |   |       |          

|Year Ended December 31, 2012                      |  | Number
of
Shares |   | Shareholders'
equity |           | Contributed
surplus |   | Deficit |   | Accumulated
other
comprehensive
loss |          | Total |   | Non-
controlling
interests |   | Total |          
|------------------------------------------------- |  | ---------------- | - | -------------------- | --------- | ------------------- | - | ------- | - | ------------------------------------ | -------- | ----- | - | -------------------------- | - | ----- | ---------
|Equity at January 1, 2012                         |  | 46,871           |   | $                    | 2,119,515 |                     | $ | 62,215  |   | $                                    | (711,096 | )     | $ |                           |   | $     | 1,470,634
|Net income                                        |  |                 |   |                      |          |                     |   |        |   |                                      | 149,756  |       |   |                           |   |       | 149,756  
|Other comprehensive income (loss)                 |  |                 |   |                      |          |                     |   |        |   |                                      |         |       |   | (10,784                    | ) |       | (10,784  
|Dividends                                         |  |                 |   |                      |          |                     |   |        |   |                                      | (93,488  | )     |   |                           |   |       | (93,488  
|Common shares issued on exercise of stock options |  | 30               |   |                      | 1,143     |                     |   | (187    | ) |                                      |         |       |   |                           |   |       | 956      
|Common shares issued on settlement of share units |  | 15               |   |                      | 350       |                     |   | (350    | ) |                                      |         |       |   |                           |   |       |         
|Stock-based compensation                          |  |                 |   |                      |          |                     |   | 432     |   |                                      |         |       |   |                           |   |       | 432      
|Repurchase of common shares for cancellation      |  | (83              | ) |                      | (3,752    | )                   |   | 1,058   |   |                                      |         |       |   |                           |   |       | (2,694   
|                                                  |  |                  |   |                      |           |                     |   |         |   |                                      |          |       |   |                            |   |       |          
|Equity at December 31, 2012                       |  | 46,833           |   | $                    | 2,117,256 |                     | $ | 63,168  |   | $                                    | (654,828 | )     | $ | (10,784                    | ) | $     | 1,514,812
|                                                  |  |                  |   |                      |           |                     |   |         |   |                                      |          |       |   |                            |   |       |          

See accompanying notes

40 Granite REIT  2013

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Combined Statements of Cash Flows(Canadian dollars in thousands)

|Years ended December 31,                                             |                                                      | Note |     | 2013 |          | 2012     |  
|-------------------------------------------------------------------- | ---------------------------------------------------- | ---- | --- | ---- | -------- | -------- | -
|
|OPERATING ACTIVITIES                                                 |                                                      |      |     |      |          |          |  
|Net income                                                           |                                                      |      |     | $    | 145,266  |          | $
|Items not involving current cash flows                               |                                                      | 18   | (a) |      | (16,516  | )        |  
|Current income tax expense                                           |                                                      |      |     |      | 10,490   |          |  
|Income taxes paid                                                    |                                                      |      |     |      | (14,525  | )        |  
|Interest expense                                                     |                                                      |      |     |      | 19,945   |          |  
|Interest paid                                                        |                                                      |      |     |      | (17,059  | )        |  
|Changes in working capital balances                                  |                                                      | 18   | (b) |      | 293      |          |  
|                                                                     |                                                      |      |     |      |          |          |  
|Cash provided by operating activities                                |                                                      |      |     |      | 127,894  |          |  
|                                                                     |                                                      |      |     |      |          |          |  
|INVESTING ACTIVITIES                                                 |                                                      |      |     |      |          |          |  
|Investment properties:                                               |                                                      |      |     |      |          |          |  
|                                                                     | Business acquisitions (net of cash acquired of $375) |      | 4   |      |          | (233,363 | )
|                                                                     | Acquisition of development lands                     |      | 4   |      |          | (14,204  | )
|                                                                     | Capital expenditures                                 |      |     |      |          | (28,853  | )
|                                                                     | Proceeds on disposal, net                            |      | 5   |      |          | 16,843   |  
|Fixed asset additions                                                |                                                      |      |     |      | (673     | )        |  
|Proceeds from notes receivable                                       |                                                      | 6    |     |      | 7,870    |          |  
|(Increase) decrease in other assets                                  |                                                      |      |     |      | (1,209   | )        |  
|                                                                     |                                                      |      |     |      |          |          |  
|Cash used in investing activities                                    |                                                      |      |     |      | (253,589 | )        |  
|                                                                     |                                                      |      |     |      |          |          |  
|FINANCING ACTIVITIES                                                 |                                                      |      |     |      |          |          |  
|Distributions or dividends paid                                      |                                                      |      |     |      | (90,331  | )        |  
|Proceeds from units or shares issued                                 |                                                      |      |     |      | 3,116    |          |  
|Proceeds from unsecured debentures issued                            |                                                      |      |     |      | 200,000  |          |  
|Proceeds from bank indebtedness                                      |                                                      |      |     |      | 129,095  |          |  
|Repayments of bank indebtedness                                      |                                                      |      |     |      | (78,692  | )        |  
|Financing costs paid                                                 |                                                      |      |     |      | (2,765   | )        |  
|Contributions from non-controlling interests                         |                                                      |      |     |      | 1,921    |          |  
|Distributions to non-controlling interests                           |                                                      |      |     |      | (215     | )        |  
|Repurchase of common shares                                          |                                                      |      |     |      |         |          |  
|                                                                     |                                                      |      |     |      |          |          |  
|Cash provided by (used in) financing activities                      |                                                      |      |     |      | 162,129  |          |  
|                                                                     |                                                      |      |     |      |          |          |  
|Effect of exchange rate changes on cash and cash equivalents         |                                                      |      |     |      | 8,013    |          |  
|                                                                     |                                                      |      |     |      |          |          |  
|Net increase (decrease) in cash and cash equivalents during the year |                                                      |      |     |      | 44,447   |          |  
|Cash and cash equivalents, beginning of year                         |                                                      |      |     |      | 51,073   |          |  
|                                                                     |                                                      |      |     |      |          |          |  
|Cash and cash equivalents, end of year                               |                                                      |      |     | $    | 95,520   |          | $
|                                                                     |                                                      |      |     |      |          |          |  

See accompanying notes

Granite REIT  2013 41

---



Notes to Combined Financial Statements(All amounts in Canadian dollars and all tabular amounts in thousands unless otherwise noted)

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. The conversion to a REIT was implemented pursuant to a court approved plan of arrangement (the "Arrangement") under theBusiness Corporations
Act(Quebec). Through a series of steps and reorganizations Granite Real Estate Investment Trust ("Granite REIT") and Granite REIT Inc. ("Granite GP"), in
addition to other entities, were formed. Granite REIT is an unincorporated, open ended, limited purpose trust established under and governed by the laws of the province of Ontario and created pursuant
to a Declaration of Trust dated September 28, 2012 and recently amended on January 3, 2013. Granite GP was incorporated on September 28, 2012 under the Business Corporations Act(British Columbia).

Under
the Arrangement, 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 REIT and one common share
of Granite GP. Granite REIT, Granite GP and their subsidiaries (together "Granite" or the "Trust") are carrying on the business previously conducted by Granite Co. The assets,
liabilities and operations of the new combined stapled unit structure comprise all the assets, liabilities and operations of Granite Co. (note 2(c)). The stapled units trade on the
Toronto Stock Exchange ("TSX") and on the New York Stock Exchange ("NYSE"). The principal office of Granite REIT is 77 King Street West, Suite 4010, P.O. Box 159,
Toronto-Dominion Centre, Toronto, Ontario, M5K 1H1, Canada. The registered office of Granite GP is Suite 2600, Three Bentall Centre, 595 Burrard Street
P.O. Box 49314, Vancouver, British Columbia, V7X 1L3, Canada.

The
Trust is a Canadian-based REIT engaged in the ownership and management of predominantly industrial, warehouse and logistics properties in North America and Europe. The Trust owns approximately
32.0 million square feet in over 100 rental income properties. The Trust's tenant base currently includes Magna International Inc. and its operating subsidiaries (together
"Magna") as its largest tenants, together with tenants from other industries.

These
combined financial statements were approved by the Board of Trustees of Granite REIT and Board of Directors of Granite GP on March 5, 2014.

2.  SIGNIFICANT ACCOUNTING POLICIES

---

The
accounting policies described below have been applied consistently to all periods presented in these combined financial statements and in preparing the opening International Financial Reporting
Standards ("IFRS") balance sheet as at January 1, 2012 for the purposes of the transition to IFRS. Standards and guidelines not effective for the current period are described in
note 2(o) below.

These
combined financial statements contain disclosures that explain accounting policy differences between IFRS and United States generally accepted accounting principles ("U.S. GAAP")
that are significant to the understanding of the changes in financial position and performance of the Trust since the annual financial statements for the year ended December 31, 2012, which
were prepared in accordance with U.S. GAAP.



42 Granite REIT  2013

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Granite REIT  2013 43

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44 Granite REIT  2013

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Granite REIT  2013 45

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46 Granite REIT  2013

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Granite REIT  2013 47

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48 Granite REIT  2013

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Granite REIT  2013 49

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3.  TRANSITION TO IFRS

---

Reconciliation of Equity as Reported Under U.S. GAAP and IFRS

The Trust has adopted IFRS as its basis of financial reporting effective for the year ended December 31, 2013. An opening IFRS balance sheet has been presented using a
transition date of January 1, 2012 and comparative figures have also been conformed to comply with IFRS. Prior to the adoption of IFRS, the Trust prepared its financial statements in accordance
with U.S. GAAP.





50 Granite REIT  2013

---







|                                                  |  | Note |   | December 31,
2011
U.S. GAAP |           | Effect of
transition to
IFRS |   | January 1,
2012
IFRS
|------------------------------------------------- |  | ---- | - | --------------------------- | --------- | ---------------------------- | - | --------------------
|ASSETS                                            |  |      |   |                             |           |                              |   |                     
|Non-current assets:                               |  |      |   |                             |           |                              |   |                     
|Real estate properties, net/Investment properties |  | (i   | ) | $                           | 1,154,780 |                              | $ | 737,071             
|Deferred rent receivable                          |  | (ii  | ) |                             | 12,704    |                              |   | (12,704             
|Deferred tax assets                               |  | (iii | ) |                             | 1,292     |                              |   | (1,292              
|Other non-current assets                          |  | (ii  | ) |                             | 6,177     |                              |   | (3,171              
|                                                  |  |      |   |                             |           |                              |   |                     
|                                                  |  |      |   |                             | 1,174,953 |                              |   | 719,904             
|Current assets:                                   |  |      |   |                             |           |                              |   |                     
|Other current assets                              |  |      |   |                             | 13,553    |                              |   |                    
|Cash and cash equivalents                         |  |      |   |                             | 56,908    |                              |   |                    
|                                                  |  |      |   |                             |           |                              |   |                     
|Total assets                                      |  |      |   | $                           | 1,245,414 |                              | $ | 719,904             
|                                                  |  |      |   |                             |           |                              |   |                     
|LIABILITIES AND SHAREHOLDERS' EQUITY              |  |      |   |                             |           |                              |   |                     
|Non-current liabilities:                          |  |      |   |                             |           |                              |   |                     
|Unsecured debentures, net                         |  |      |   | $                           | 263,236   |                              | $ |                    
|Deferred tax liabilities                          |  | (iii | ) |                             | 30,224    |                              |   | 163,149             
|Deferred revenue                                  |  | (ii  | ) |                             | 3,989     |                              |   | (3,989              
|                                                  |  |      |   |                             |           |                              |   |                     
|                                                  |  |      |   |                             | 297,449   |                              |   | 159,160             
|Current liabilities:                              |  |      |   |                             |           |                              |   |                     
|Deferred revenue                                  |  | (ii  | ) |                             | 3,599     |                              |   | (1,080              
|Other current liabilities                         |  | (v   | ) |                             | 35,126    |                              |   | (484                
|                                                  |  |      |   |                             |           |                              |   |                     
|Total liabilities                                 |  |      |   |                             | 336,174   |                              |   | 157,596             
|                                                  |  |      |   |                             |           |                              |   |                     
|Shareholders' equity                              |  | (iv  | ) |                             | 909,240   |                              |   | 561,394             
|Non-controlling interests                         |  | (v   | ) |                             |          |                              |   | 914                 
|                                                  |  |      |   |                             |           |                              |   |                     
|Total liabilities and shareholders' equity        |  |      |   | $                           | 1,245,414 |                              | $ | 719,904             
|                                                  |  |      |   |                             |           |                              |   |                     

Granite REIT  2013 51

---





|                                                  |  | Note      |  | U.S. GAAP |           | Effect of
transition to
IFRS |   | IFRS   
|------------------------------------------------- |  | --------- |  | --------- | --------- | ---------------------------- | - | -------
|ASSETS                                            |  |           |  |           |           |                              |   |        
|Non-current assets:                               |  |           |  |           |           |                              |   |        
|Real estate properties, net/Investment properties |  | (i)       |  | $         | 1,136,158 |                              | $ | 807,539
|Deferred rent receivable                          |  | (ii)      |  |           | 11,518    |                              |   | (11,518
|Deferred tax assets                               |  | (iii)     |  |           | 3,924     |                              |   | (3,924 
|Other non-current assets                          |  | (ii)      |  |           | 5,369     |                              |   | (3,212 
|                                                  |  |           |  |           |           |                              |   |        
|                                                  |  |           |  |           | 1,156,969 |                              |   | 788,885
|Current assets:                                   |  |           |  |           |           |                              |   |        
|Other current assets                              |  |           |  |           | 10,163    |                              |   |       
|Cash and cash equivalents                         |  |           |  |           | 51,073    |                              |   |       
|                                                  |  |           |  |           |           |                              |   |        
|Total assets                                      |  |           |  | $         | 1,218,205 |                              | $ | 788,885
|                                                  |  |           |  |           |           |                              |   |        
|LIABILITIES AND SHAREHOLDERS' EQUITY              |  |           |  |           |           |                              |   |        
|Non-current liabilities:                          |  |           |  |           |           |                              |   |        
|Unsecured debentures, net                         |  |           |  | $         | 263,589   |                              | $ |       
|Deferred tax liabilities                          |  | (iii)     |  |           | 27,626    |                              |   | 157,589
|Deferred revenue                                  |  | (ii)      |  |           | 4,782     |                              |   | (4,782 
|                                                  |  |           |  |           |           |                              |   |        
|                                                  |  |           |  |           | 295,997   |                              |   | 152,807
|Current liabilities:                              |  |           |  |           |           |                              |   |        
|Deferred revenue                                  |  | (ii)      |  |           | 5,839     |                              |   | (1,345 
|Other current liabilities                         |  | (iii),(v) |  |           | 39,368    |                              |   | (1,429 
|                                                  |  |           |  |           |           |                              |   |        
|Total liabilities                                 |  |           |  |           | 341,204   |                              |   | 150,033
|                                                  |  |           |  |           |           |                              |   |        
|Shareholders' equity                              |  | (iv)      |  |           | 877,001   |                              |   | 637,811
|Non-controlling interests                         |  | (v)       |  |           |          |                              |   | 1,041  
|                                                  |  |           |  |           |           |                              |   |        
|Total liabilities and shareholders' equity        |  |           |  | $         | 1,218,205 |                              | $ | 788,885
|                                                  |  |           |  |           |           |                              |   |        







52 Granite REIT  2013

---









|Year ended December 31,                                   |                                                              | Note |      | 2012 |        
|--------------------------------------------------------- | ------------------------------------------------------------ | ---- | ---- | ---- | -------
|Net income as reported under U.S. GAAP                    |                                                              |      |      | $    | 71,337 
|Differences increasing (decreasing) the reported amounts: |                                                              |      |      |      |        
|                                                          | Fair value gains recorded under IFRS                         |      | (i   | )    |        
|                                                          | Depreciation and amortization recorded under U.S. GAAP       |      | (ii  | )    |        
|                                                          | Deferred tax expense                                         |      | (iii | )    |        
|                                                          | Current tax expense                                          |      | (iii | )    |        
|                                                          | Other                                                        |      | (iv  | )    |        
|                                                          |                                                              |      |      |      |        
|Net income as reported under IFRS                         |                                                              |      |      | $    | 149,827
|                                                          |                                                              |      |      |      |        
|Other comprehensive loss reported under U.S. GAAP         |                                                              |      |      | $    | (8,669 
|                                                          | Change in foreign currency translation of foreign operations |      | (v   | )    |        
|                                                          |                                                              |      |      |      |        
|Other comprehensive loss reported under IFRS              |                                                              |      |      |      | (10,728
|                                                          |                                                              |      |      |      |        
|Comprehensive income as reported under IFRS               |                                                              |      |      | $    | 139,099
|                                                          |                                                              |      |      |      |        





Granite REIT  2013 53

---









4.  ACQUISITIONS

---

Acquisitions
of income-producing properties and development lands completed during the year ended December 31, 2013 consist of the following:



54 Granite REIT  2013

---







U.S. Properties

European
Properties

TotalPurchase consideration:Cash sourced from Credit Facility (note 10) or issuance of 2018 Debentures (note 8(b))

$
44,076

$
188,737

$
232,813Cash on hand


925





925Contingent consideration


688





688Total consideration paid

$
45,689

$
188,737

$
234,426Recognized amounts of identifiable assets acquired and liabilities assumed measured at their respective fair values:Investment properties

$
83,450

$
185,704

$
269,154Working capital


777


(1,155
)

(378
)Restricted cash(1)





4,188


4,188Mortgages payable


(36,437
)




(36,437
)Identifiable net assets


47,790


188,737


236,527Non-controlling interests


(2,101
)




(2,101
)Total

$
45,689

$
188,737

$
234,426










Granite REIT  2013 55

---



5.  INVESTMENT PROPERTIES

---

|As at                                 |  | December 31, 2013 |           | December 31, 2012 |   | January 1, 2012
|------------------------------------- |  | ----------------- | --------- | ----------------- | - | ---------------
|Income-Producing Properties           |  | $                 | 2,325,583 |                   | $ | 1,941,936      
|Properties and Land Under Development |  |                   | 18,108    |                   |   | 1,761          
|Land Held For Development             |  |                   | 8,206     |                   |   |               
|                                      |  |                   |           |                   |   |                
|                                      |  | $                 | 2,351,897 |                   | $ | 1,943,697      
|                                      |  |                   |           |                   |   |                

Changes
in investment properties are shown in the following table:

|                                  |  | December 31, 2013 |           | December 31, 2012 |  
|--------------------------------- |  | ----------------- | --------- | ----------------- | -
|
|Balance, beginning of year        |  | $                 | 1,941,936 |                   | $
|Additions                         |  |                   |           |                   |  
| Capital expenditures            |  |                   | 13,152    |                   |  
| Acquisitions                    |  |                   | 269,154   |                   |  
| Completed projects              |  |                   | 6,364     |                   |  
|Fair value gains (losses), net    |  |                   | (23,297   | )                 |  
|Foreign currency translation, net |  |                   | 135,428   |                   |  
|Disposals                         |  |                   | (17,447   | )                 |  
|Other changes                     |  |                   | 293       |                   |  
|                                  |  |                   |           |                   |  
|Balance, end of year              |  | $                 | 2,325,583 |                   | $
|                                  |  |                   |           |                   |  

During
the year ended December 31, 2013, the Trust disposed of four income-producing properties located in Canada, the United States, the United Kingdom and Poland, for aggregate
net proceeds of $16.8 million and incurred a $0.6 million loss on disposal due to the associated selling costs. The fair value loss during the year ended December 31, 2013
excluding properties sold in the year was $28.5 million. During the year ended December 31, 2012, the Trust disposed of an income-producing property for net proceeds of
$1.2 million and recorded a nominal loss on disposal. The fair value gain during the year ended December 31, 2012 excluding the property sold in the year was $33.3 million.

The
Trust determines the fair value of each 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 renewal at the applicable balance sheet dates, less future cash outflows in respect of such leases. Fair values are primarily determined by discounting the
expected future cash flows, generally over a term of 10 years including a terminal value based on the application of a capitalization rate to estimated year 11 cash flows. Properties and
land under development that pertain to expansion projects are measured using a discounted cash flow model, net of costs to complete, as of the balance sheet date unless fair value cannot be determined
in which case they are valued at cost. The Trust valued land held for development based on its acquisition date fair value. In accordance with its policy, the Trust measures its investment properties
using valuations prepared by management. The Trust does not measure its investment properties based on valuations prepared by external appraisers but considers the result of such appraisals in
arriving at its own conclusions on values.

56 Granite REIT  2013

---



The
Trust's internal valuation team consists of individuals knowledgeable and experienced in the fair value techniques for investment properties. On a quarterly basis, the fair values of the
investment properties are updated by the Trust's internal valuation team for current leasing and market assumptions, utilizing market capitalization rates as provided by independent real estate
appraisal firms with representations and expertise in the various jurisdictions our investment properties are located in. The resulting changes in fair values are analyzed at each reporting date and
the internal valuation team presents a report to senior management that explains the fair value movements. This report and the results of the updated valuations and processes are formally reviewed by
and discussed with senior management quarterly. For all investment properties, the current use equates to the highest and best use.

Valuations
are most sensitive to changes in discount rates and terminal capitalization rates. The table below summarizes the sensitivity of the fair value of investment properties to changes in either
the discount rate or terminal capitalization rate:

|                  |  | Discount Rate |           | Terminal
Capitalization Rate |  
|----------------- |  | ------------- | --------- | ---------------------------- | -
|
|+ 50 basis points |  | $             | 2,278,985 |                              | $
|+ 25 basis points |  |               | 2,314,150 |                              |  
|Base rate         |  |               | 2,351,897 |                              |  
|- 25 basis points |  |               | 2,390,580 |                              |  
|- 50 basis points |  |               | 2,430,100 |                              |  

The
key valuation metrics for investment properties are set out below:

|As at             |  | December 31, 2013 |  | December 31, 2012 |  | January 1, 2012
|----------------- |  | ----------------- |  | ----------------- |  | ---------------
|
|Canada            |  |                   |  |                   |  |                
|Discount rate     |  | 8.50%             |  | 6.50%             |  | 7.76%          
|Terminal cap rate |  | 8.50%             |  | 5.75%             |  | 7.26%          
|United States     |  |                   |  |                   |  |                
|Discount rate     |  | 14.00%            |  | 7.30%             |  | 9.35%          
|Terminal cap rate |  | 13.00%            |  | 7.25%             |  | 9.24%          
|Mexico            |  |                   |  |                   |  |                
|Discount rate     |  | 13.25%            |  | 11.75%            |  | 12.91%         
|Terminal cap rate |  | 13.75%            |  | 10.75%            |  | 12.89%         
|Germany           |  |                   |  |                   |  |                
|Discount rate     |  | 9.25%             |  | 6.20%             |  | 8.15%          
|Terminal cap rate |  | 9.25%             |  | 7.50%             |  | 8.37%          
|Austria           |  |                   |  |                   |  |                
|Discount rate     |  | 8.75%             |  | 8.25%             |  | 8.38%          
|Terminal cap rate |  | 9.25%             |  | 8.75%             |  | 8.87%          
|Other             |  |                   |  |                   |  |                
|Discount rate     |  | 11.00%            |  | 6.84%             |  | 8.81%          
|Terminal cap rate |  | 10.50%            |  | 7.50%             |  | 8.17%          

Granite REIT  2013 57

---



On September 20, 2013, Granite entered into a non-binding letter of intent (the "LOI") for the sale to Magna of Granite's portfolio of Mexican
properties currently leased to Magna and representing an aggregate of approximately 2.4 million square feet. On March 5, 2014, Granite entered into an asset purchase agreement
with Magna for the sale of the Mexican portfolio at a purchase price of U.S. $105.0 million (note 24(d)). During the year ended December 31, 2013, the Trust incurred costs
of $0.3 million related to this transaction, which are included in loss on sale of investment properties on the combined statements of income.

Included
in investment properties is $11.2 million (December 31, 2012  $11.5 million; January 1,
2012  $12.7 million) of net straight-line rent receivable 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 23).

Minimum
rental commitments on non-cancellable tenant operating leases are as follows:

Not later than 1 year

$
214,787Later than 1 year and not later than 5 years


765,081Later than 5 years


144,122$
1,123,990


6.  NOTES RECEIVABLE

---

On
February 28, 2013, the Trust entered into a settlement agreement for U.S. $5.0 million relating to a holdback receivable ("Meadows note") of a former subsidiary's sale of a
property in 2006. The note was payable in U.S. $0.5 million monthly instalments (the Trust's share), commencing March 31, 2013. The final instalment was received on
October 4, 2013.

During
2013, the Trust received U.S. $2.5 million relating to the final instalment of an unsecured note, which bore interest at 5.0% per annum.

7.  OTHER ASSETS

---

Other
assets consist of:

|As at                       |  | December 31, 2013 |       | December 31, 2012 |   | January 1, 2012
|--------------------------- |  | ----------------- | ----- | ----------------- | - | ---------------
|Deferred financing costs    |  | $                 | 433   |                   | $ | 222            
|Long-term receivables       |  |                   | 525   |                   |   | 98             
|Interest rate caps (note 9) |  |                   | 678   |                   |   |               
|Deposits                    |  |                   | 322   |                   |   |               
|                            |  |                   |       |                   |   |                
|                            |  | $                 | 1,958 |                   | $ | 320            
|                            |  |                   |       |                   |   |                

58 Granite REIT  2013

---



8.  UNSECURED DEBENTURES, NET

---

Unsecured
debentures, net, consist of:

Carrying value

|As at                                |  | December 31, 2013 |         | December 31, 2012 |   | January 1, 2012
|------------------------------------ |  | ----------------- | ------- | ----------------- | - | ---------------
|6.05% Debentures, at amortized cost  |  | $                 | 263,941 |                   | $ | 263,589        
|4.613% Debentures, at amortized cost |  |                   | 198,129 |                   |   |               
|                                     |  |                   |         |                   |   |                
|                                     |  | $                 | 462,070 |                   | $ | 263,589        
|                                     |  |                   |         |                   |   |                

Principal issued and outstanding

|As at             |  | Date Issued       |  | Maturity Date     |  | December 31, 2013 |         | December 31, 2012 |   | January 1, 2012
|----------------- |  | ----------------- |  | ----------------- |  | ----------------- | ------- | ----------------- | - | ---------------
|6.05% Debentures  |  | December 22, 2004 |  | December 22, 2016 |  | $                 | 265,000 |                   | $ | 265,000        
|4.613% Debentures |  | October 2, 2013   |  | October 2, 2018   |  |                   | 200,000 |                   |   |               
|                  |  |                   |  |                   |  |                   |         |                   |   |                
|                  |  |                   |  |                   |  | $                 | 465,000 |                   | $ | 265,000        
|                  |  |                   |  |                   |  |                   |         |                   |   |                





Granite REIT  2013 59

---







9.  SECURED LONG-TERM DEBT

---



2014

$
2172015


8192016


9182017


24,6042018


12,211$
38,769






60 Granite REIT  2013

---





10.  BANK INDEBTEDNESS

---

Effective
February 1, 2013, the Trust entered into an unsecured senior revolving credit facility in the amount of $175.0 million that is available by way of Canadian dollar,
U.S. dollar or euro denominated loans or letters of credit (the "Credit Facility") and matures on February 1, 2015. However, the Trust has the option to extend the maturity date
by one year to February 1, 2016, subject to the agreement of lenders in respect of a minimum of 662/3% of the aggregate amount committed under the Credit Facility. The Credit
Facility provides the Trust with the ability to increase the amount of the commitment by an additional aggregate principal amount of up to $75.0 million with the consent of the participating
lenders. Interest on drawn amounts is calculated based on an applicable margin determined by the Trust's external credit rating. Based on the current credit rating, the Trust would be subject to
interest at a rate per annum equal to the base rate (i.e. LIBOR, Canadian prime business rate or eurocurrency rate) depending on the currency the Trust borrows in plus an applicable margin of
up to 1.63%. At December 31, 2013, the Trust had $53.2 million (U.S. $50.0 million) drawn under the Credit Facility and $1.2 million in letters of credit issued
against the Credit Facility.

The
Trust previously had an unsecured senior revolving credit facility in the amount of $50.0 million that was replaced by the above mentioned Credit Facility and was available by way of
Canadian dollar, U.S. dollar or euro denominated loans or letters of credit (the "2012 Granite Credit Facility"). The 2012 Granite Credit Facility was entered into February 7,
2012 and was scheduled to mature on February 7, 2014. Interest on drawn amounts was calculated based on an applicable margin determined by the Trust's external credit rating. During 2012, the
Trust was subject to interest at a rate per annum equal to the base rate (i.e. LIBOR, Canadian prime business rate or Canadian dollar bankers' acceptance rate) depending on the currency
borrowed in plus an applicable margin of up to 1.75%. No amounts were drawn under the 2012 Granite Credit Facility as at December 31, 2012. The Trust did not have a credit facility as at
January 1, 2012.

11.  ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

---

Accounts
payable and accrued liabilities consist of:

|As at                                            |  | December 31,
2013 |        | December 31,
2012 |   | January 1,
2012
|------------------------------------------------ |  | ----------------- | ------ | ----------------- | - | ---------------
|Accounts payable                                 |  | $                 | 5,828  |                   | $ | 5,558          
|Accrued salaries and wages                       |  |                   | 4,771  |                   |   | 3,913          
|Accrued interest payable                         |  |                   | 2,708  |                   |   | 387            
|Accrued construction payable                     |  |                   | 7,141  |                   |   | 8,167          
|Accrued acquisition costs                        |  |                   | 1,733  |                   |   |               
|Accrued stapled unit options                     |  |                   | 356    |                   |   |               
|Accrued executive deferred stapled units         |  |                   | 1,395  |                   |   |               
|Accrued trustee/director unit-based compensation |  |                   | 3,291  |                   |   | 2,283          
|Other accrued liabilities                        |  |                   | 5,955  |                   |   | 5,647          
|                                                 |  |                   |        |                   |   |                
|                                                 |  | $                 | 33,178 |                   | $ | 25,955         
|                                                 |  |                   |        |                   |   |                

Granite REIT  2013 61

---



12.  INCOME TAXES

---

Years ended December 31,

2013

2012Current income tax:Current taxes

$
6,000

$
15,987Withholding taxes and other


4,490


2,66510,490


18,652Deferred income tax:Origination and reversal of temporary differences


4,555


17,948Impact of changes in tax rates


699


4,095Reversal of withholding taxes on profits of subsidiaries


(4,430
)

(2,665
)Reversal of deferred tax liability upon REIT conversion and related reorganizations


(41,950
)

(22,859
)Other


(699
)

(3,442
)(41,825
)

(6,923
)Income tax expense (recovery)

$
(31,335
)
$
11,729


Years ended December 31,

2013

2012Income before income taxes

$
113,931

$
161,556Expected income taxes at the Canadian statutory tax rate of 26.5% (2012  26.5%)

$
30,192

$
42,812Income distributed and taxable to unitholders


(23,735
)

Reversal of deferred tax liability upon REIT conversion and related reorganizations


(41,950
)

(22,859
)Net foreign rate differentials


2,698


(12,553
)Net change in provisions for uncertain tax positions


(194
)

1,568Net permanent differences


(873
)

(374
)Net effect of change in tax rates


699


4,095Withholding taxes and other items


1,828


(960
)Income tax expense (recovery)

$
(31,335
)
$
11,729


62 Granite REIT  2013

---



As at

December 31,
2013

December 31,
2012

January 1,
2012Deferred tax assets:Investment properties

$
2,447

$


$
Eligible capital expenditures


3,509





Other


2,217





Total deferred tax assets


8,173





Deferred tax liabilities:Investment properties


165,362


185,249


190,492Eligible capital expenditures





(4,635
)

(3,604
)Withholding tax on undistributed subsidiary profits


1,014


4,741


5,645Other


246


(140
)

840Total deferred tax liabilities


166,622


185,215


193,373Net deferred tax liabilities

$
158,449

$
185,215

$
193,373


Years ended December 31,

2013

2012Balance, beginning of year

$
185,215

$
193,373Deferred tax recovery recognized in net income


(41,825
)

(6,923
)Foreign currency translation of deferred tax balances


15,059


(1,235
)$
158,449

$
185,215




Granite REIT  2013 63

---





As at

December 31,
2013

December 31,
2012Unrecognized tax benefits balance, beginning of year

$
12,263

$
10,885Increases (decreases) for tax positions of prior years


(510
)

598Increases for tax positions of current year


1,749


862Foreign currency impact


663


(82
)Unrecognized tax benefits balance, end of year

$
14,165

$
12,263




Major JurisdictionsCanada

2004 through 2006 and 2008 through 2013United States

2011 through 2013Mexico

2009 through 2013Austria

2009 through 2013Germany

2008 through 2011




13.  STAPLED UNITHOLDERS' AND SHAREHOLDERS' EQUITY

---





64 Granite REIT  2013

---





2013

2012Number
(000s)

Weighted
Average
Exercise
Price

Number
(000s)

Weighted
Average
Exercise
PriceOptions outstanding, January 1

205

$
32.01

235

$
31.99Exercised

(105
)

30.20

(30
)

31.85Options outstanding and exercisable, December 31

100

$
33.92

205

$
32.01




Year of Issuance

Number
(000s)

Exercise Price

Weighted
Average
Remaining
Life in Years2004

50

$
35.62

1.02007

50


32.21

3.7100

$
33.92

2.3




Granite REIT  2013 65

---





2013

2012Number
(000s)

Weighted
Average
Grant Date
Fair Value

Number
(000s)

Weighted
Average
Grant Date
Fair ValueDSUs outstanding, January 1

61

$
30.95

31

$
26.73Granted

26


37.62

30


35.18DSUs outstanding, December 31

87

$
32.92

61

$
30.95




2013

2012Number
(000s)

Weighted
Average
Grant Date
Fair Value

Number
(000s)

Weighted
Average
Grant Date
Fair ValueStapled units outstanding, January 1

38

$
35.63

26

$
25.42Granted

31


39.03

40


35.61Settled

(7
)

35.41

(24
)

25.69Forfeited






(4
)

25.42Stapled units outstanding, December 31

62

$
37.42

38

$
35.63




66 Granite REIT  2013

---





As at

December 31,
2013

December 31,
2012Foreign currency translation gains (losses) on investments in subsidiaries, net of related hedging activities and non-controlling interests

$
108,551

$
(10,784
)Losses on derivatives designated as net investment hedges


(11,490
)

$
97,061

$
(10,784
)


14.  DISTRIBUTIONS TO STAPLED UNITHOLDERS

---

Total
distributions declared to stapled unitholders in the year ended December 31, 2013 were $98.9 million (2012  $93.5 million) or $2.11
per stapled unit (2012  $1.99 per common share). At December 31, 2013, $8.6 million, representing the December 2013 distribution, remained
unpaid. Subsequent to December 31, 2013, distributions of 18.3 cents per stapled unit were declared on January 17 and February 18, 2014. The distribution declared in
January 2014 in the amount of $8.6 million was paid on February 14, 2014 and the distribution declared in February 2014 of $8.6 million will be paid on
March 14, 2014.

15.  OPERATING COSTS AND EXPENSES (INCOME)

---

Years ended December 31,

2013

2012Non-recoverable from tenantsProperty taxes and utilities

$
1,162

$
2,457Legal


1,161


759Environmental and appraisals


772


1,753Repairs and maintenance


617


205Other


715


408$
4,427

$
5,582


Years ended December 31,

2013

2012Recoverable from tenantsProperty taxes and utilities

$
692

$
Repairs and maintenance


182


Other


273


$
1,147

$



Granite REIT  2013 67

---





Years ended December 31,

2013

2012Salaries and benefits

$
14,045

$
12,491Audit, legal and consulting


4,159


3,725REIT conversion and reorganization related costs


2,479


7,914Trustee/director fees and related expenses


1,970


1,794Other


4,660


5,087$
27,313

$
31,011


Years ended December 31,

2013

2012Interest, accretion and costs on debentures

$
18,250

$
16,385Interest on mortgages payable


877


Amortization of deferred financing costs


589


188Other interest


1,310


30921,026


16,882Capitalized interest


(119
)

(491
)Interest income


(322
)

(520
)$
20,585

$
15,871


Years ended December 31,

2013

2012Foreign exchange forward contracts

$


$
(359
)Interest rate caps


72


$
72

$
(359
)


16.  SEGMENTED DISCLOSURE INFORMATION

---

The
Trust has one reportable segment  the ownership and rental of industrial real estate as determined by the information reviewed by the chief operating
decision maker who is the chief executive officer. The following tables present certain information with respect to geographic segmentation:

Revenues

|Years ended December 31, |  | 2013 |         | 2012
|------------------------ |  | ---- | ------- | ----
|Canada                   |  | $    | 62,762  |     
|United States            |  |      | 39,865  |     
|Mexico                   |  |      | 13,347  |     
|Austria                  |  |      | 60,782  |     
|Germany                  |  |      | 20,535  |     
|Netherlands              |  |      | 1,762   |     
|Other Europe             |  |      | 4,194   |     
|                         |  |      |         |     
|                         |  | $    | 203,247 |     
|                         |  |      |         |     

68 Granite REIT  2013

---



For
the year ended December 31, 2013, revenues from Magna were approximately 92% (2012  97%) of the Trust's total revenues.

Investment properties

|As at         |  | December 31,
2013 |           | December 31,
2012 |   | January 1,
2012
|------------- |  | ----------------- | --------- | ----------------- | - | ---------------
|Canada        |  | $                 | 701,130   |                   | $ | 707,526        
|United States |  |                   | 451,431   |                   |   | 309,100        
|Mexico        |  |                   | 111,678   |                   |   | 113,017        
|Austria       |  |                   | 674,610   |                   |   | 603,976        
|Germany       |  |                   | 276,228   |                   |   | 173,474        
|Netherlands   |  |                   | 101,522   |                   |   |               
|Other Europe  |  |                   | 35,298    |                   |   | 36,604         
|              |  |                   |           |                   |   |                
|              |  | $                 | 2,351,897 |                   | $ | 1,943,697      
|              |  |                   |           |                   |   |                

17.  EARNINGS PER STAPLED UNIT OR COMMON SHARE

---

Basic
and diluted earnings per stapled unit or common share are computed using the following inputs:

|Years ended December 31,                                                                                       |                                 | 2013 |         | 2012
|-------------------------------------------------------------------------------------------------------------- | ------------------------------- | ---- | ------- | ----
|Net income attributable to stapled unitholders' or common shareholders'                                        |                                 | $    | 145,031 |     
|                                                                                                               |                                 |      |         |     
|Weighted average number of stapled units or common shares outstanding during the year  basic (in thousands)   |                                 |      | 46,925  |     
|Adjustment:                                                                                                    |                                 |      |         |     
|                                                                                                               | Options and stapled/share units |      |         | 24  
|                                                                                                               |                                 |      |         |     
|Weighted average number of stapled units or common shares outstanding during the year  diluted (in thousands) |                                 |      | 46,949  |     
|                                                                                                               |                                 |      |         |     

The
computation of diluted earnings per stapled unit or share for the year ended December 31, 2013 excludes the effect of the potential exercise of nil options
(2012  50,000) to acquire stapled units or common shares because these options were anti-dilutive.

18.  DETAILS OF CASH FROM OPERATING ACTIVITIES

---

Years ended December 31,

2013

2012Straight-line rent adjustment

$
1,248

$
1,105Unit-based compensation expense


2,105


1,729Fair value losses (gains) on investment properties


25,224


(33,343
)Depreciation and amortization


454


244Fair value losses (gains) on financial instruments


(72
)

359Gain on settlement of Meadows note


(5,143
)

Loss on sale of investment properties


1,122


21Amortization of issuance costs and accretion of discount of debentures


494


353Amortization of deferred financing costs


589


188Foreign exchange on note receivable


(115
)

174Deferred income taxes


(41,825
)

(6,923
)Other


(597
)

1,339$
(16,516
)
$
(34,754
)


Granite REIT  2013 69

---



Years ended December 31,

2013

2012Accounts receivable

$
1,304

$
2,945Prepaid expenses and other


(222
)

(100
)Accounts payable and accrued liabilities


(256
)

6,431Deferred revenue


(1,055
)

1,997Restricted cash


522


(522
)$
293

$
10,751




19.  FAIR VALUE AND RISK MANAGEMENT

---



Fair value
through
profit
or loss

Loans and receivables/
other financial liabilitiesTotalTotal(Amortized cost)



(Carrying Value)Measurement basis
(Fair value)

(Fair value)

(Fair Value)Financial assetsInterest rate caps included in other assets
$
678

$


$


$
678

$
678Accounts receivable




2,491


2,491


2,491


2,491Restricted cash




4,360


4,360


4,360


4,360Cash and cash equivalents




95,520


95,520


95,520


95,520$
678

$
102,371

$
102,371

$
103,049

$
103,049Financial liabilitiesUnsecured debentures, net
$


$
462,070

$
485,558

$
462,070

$
485,558Cross Currency Interest Rate Swap

11,003








11,003


11,003Secured long-term debt




41,856


41,856


41,856


41,856Contingent consideration




3,777


3,777


3,777


3,777Bank indebtedness




53,180


53,180


53,180


53,180Accounts payable and accrued liabilities




33,178


33,178


33,178


33,178Distributions payable




8,591


8,591


8,591


8,591$
11,003

$
602,652

$
626,140

$
613,655

$
637,143


70 Granite REIT  2013

---





Fair value
through
profit
or loss

Loans and receivables/
other financial liabilitiesTotalTotal(Amortized cost)



(Carrying Value)Measurement basis
(Fair value)

(Fair value)

(Fair Value)Financial assetsNote receivable
$


$
2,612

$
2,612

$
2,612

$
2,612Accounts receivable




3,662


3,662


3,662


3,662Restricted cash




522


522


522


522Cash and cash equivalents




51,073


51,073


51,073


51,073$


$
57,869

$
57,869

$
57,869

$
57,869Financial liabilitiesUnsecured debentures, net
$


$
263,589

$
294,161

$
263,589

$
294,161Accounts payable and accrued liabilities

359
(1)

25,596


25,596


25,955


25,955$
359

$
289,185

$
319,757

$
289,544

$
320,116






Fair value
through
profit
or loss

Loans and receivables/
other financial liabilitiesTotalTotal(Amortized cost)



(Carrying Value)Measurement basis
(Fair value)

(Fair value)

(Fair Value)Financial assetsNote receivable
$


$
7,882

$
7,882

$
7,882

$
7,882Accounts receivable




6,557


6,557


6,557


6,557Cash and cash equivalents




56,908


56,908


56,908


56,908$


$
71,347

$
71,347

$
71,347

$
71,347Financial liabilitiesUnsecured debentures, net
$


$
263,236

$
291,781

$
263,236

$
291,781Accounts payable and accrued liabilities




13,957


13,957


13,957


13,957$


$
277,193

$
305,738

$
277,193

$
305,738




Granite REIT  2013 71

---







Level 1:

Fair value determined based on 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.




As at December 31, 2013

Level 1

Level 2

Level 3ASSETS AND LIABILITIES MEASURED OR DISCLOSED AT FAIR VALUEAssets measured at fair valueInvestment properties

$


$


$
2,351,897Interest rate caps included in other assets





678


Liabilities measured or disclosed at fair valueUnsecured debentures, net


485,558





Cross Currency Interest Rate Swap





11,003


Contingent consideration(1)








3,777Secured long-term debt





41,856


Bank indebtedness





53,180


Net Assets (Liabilities) measured at fair value

$
(485,558
)
$
(105,361
)
$
2,348,120




72 Granite REIT  2013

---





As at December 31, 2012

Level 1

Level 2

Level 3ASSETS AND LIABILITIES MEASURED OR DISCLOSED AT FAIR VALUEAssets measured at fair valueInvestment properties

$


$


$
1,943,697Liabilities measured or disclosed at fair valueUnsecured debentures, net


294,161





Foreign exchange forward contracts included in accounts payable and accrued liabilities





359


Net Assets (Liabilities) measured at fair value

$
(294,161
)
$
(359
)
$
1,943,697


|
|

As at January 1, 2012

Level 1

Level 2

Level 3ASSETS AND LIABILITIES MEASURED OR DISCLOSED AT FAIR VALUEAssets measured at fair valueInvestment properties

$


$


$
1,891,851Liabilities measured or disclosed at fair valueUnsecured debentures, net


291,781





Net Assets (Liabilities) measured at fair value

$
(291,781
)
$


$
1,891,851








Granite REIT  2013 73

---











74 Granite REIT  2013

---









Payments due by yearAs at December 31, 2013Total

2014

2015

2016

2017

2018

ThereafterUnsecured debentures

$
465,000

$


$


$
265,000

$


$
200,000

$
Cross Currency Interest Rate Swap


11,003














11,003


Secured long-term debt(1)


42,065


217


819


4,214


24,604


12,211


Bank indebtedness(1)


53,180





53,180











Interest expense(2)Unsecured debentures, net of Cross Currency Interest Rate Swap


83,726


23,180


23,153


23,153


7,120


7,120


Secured long-term debt


3,554


1,046


1,034


1,011


361


102


Bank indebtedness


1,037


957


80











Contingent consideration


3,777














3,777


Accounts payable and accrued liabilities


33,178


32,083


985


110








Distribution payable


8,591


8,591














$
705,111

$
66,074

$
79,251

$
293,488

$
32,085

$
234,213

$





20.  CAPITAL MANAGEMENT

---

The
Trust's capital structure comprises the total of the stapled unitholders' equity and consolidated debt. The total managed capital of the Trust is summarized below:

|As at                                        |  | December 31,
2013 |           | December 31,
2012 |   | January 1,
2012
|-------------------------------------------- |  | ----------------- | --------- | ----------------- | - | ---------------
|Unsecured debentures, net                    |  | $                 | 462,070   |                   | $ | 263,589        
|Cross Currency Interest Rate Swap            |  |                   | 11,003    |                   |   |               
|Secured long-term debt                       |  |                   | 41,856    |                   |   |               
|Bank indebtedness                            |  |                   | 53,180    |                   |   |               
|                                             |  |                   |           |                   |   |                
|Total debt                                   |  |                   | 568,109   |                   |   | 263,589        
|Stapled unitholders' or shareholders' equity |  |                   | 1,671,227 |                   |   | 1,514,812      
|                                             |  |                   |           |                   |   |                
|Total managed capital                        |  | $                 | 2,239,336 |                   | $ | 1,778,401      
|                                             |  |                   |           |                   |   |                

The
Trust manages, monitors and adjusts its capital balances in response to the availability of capital, economic conditions and investment opportunities with the following objectives in mind:



Granite REIT  2013 75

---





The
Declaration of Trust contains certain provisions with respect to capital management which include:



Currently,
the Trust's consolidated debt consists of the Credit Facility, the 2016 Debentures, the 2018 Debentures, property specific mortgage financing and the Construction Loan and each of these
components has various financial covenants. These covenants are defined within the relevant document and, depending on the debt instrument, include a total indebtedness ratio, a secured indebtedness
ratio, interest and asset coverage ratio, unencumbered asset ratio and maximum payout ratio. The Trust monitors these provisions and covenants and was in compliance with their respective requirements
at December 31, 2013.

Distributions
are made at the discretion of the Board of Trustees (the "Board"). However, Granite REIT intends to distribute each year all of its taxable income as calculated in accordance with
the Income Tax Act. For the fiscal year 2013, the Trust provided to its unitholders a monthly distribution of $0.175 per stapled unit which was increased to $0.183 per stapled unit for
December's distribution. The Board determined this distribution level having considered, among other factors, estimated 2013 and 2014 funds from operations and capital requirements, the alignment of
its current and targeted payout ratios with the Trust's strategic objectives and compliance with the above noted provisions and financial covenants.

21.  RELATED PARTY TRANSACTIONS

---

Key
management personnel include the Trustees/Directors, the Chief Executive Officer and the Chief Financial Officer. Information with respect to the Trustees/Directors fees is included in
note 15(b). The compensation paid or payable to the Trust's key management personnel for services was as follows:

|Years ended December 31,                     |  | 2013 |       | 2012
|-------------------------------------------- |  | ---- | ----- | ----
|Salaries, incentives and short-term benefits |  | $    | 2,404 |     
|Unit-based compensation                      |  |      | 716   |     
|                                             |  |      |       |     
|                                             |  | $    | 3,120 |     
|                                             |  |      |       |     

76 Granite REIT  2013

---



22.  COMBINED FINANCIAL INFORMATION

---

The
combined financial statements include the financial position and results of operations and cash flows of each of Granite REIT and Granite GP. Prior to January 3, 2013, the operating
results were consolidated by Granite Co. and therefore there is no comparative financial information presented. Below is a summary of the financial information for each entity along with the
elimination entries and other adjustments that aggregate to the combined financial statements:

|Balance Sheet                                     |  | As at December 31, 2013
|------------------------------------------------- |  | -----------------------
|
|ASSETS                                            |  |                        
|Non-current assets:                               |  |                        
|Investment properties                             |  | $                      
|Deferred tax assets                               |  |                        
|Investment in Granite LP                          |  |                        
|Other non-current assets                          |  |                        
|                                                  |  |                        
|                                                  |  |                        
|Current assets:                                   |  |                        
|Other current assets                              |  |                        
|Intercompany receivable                           |  |                        
|Cash and cash equivalents                         |  |                        
|                                                  |  |                        
|Total assets                                      |  | $                      
|                                                  |  |                        
|LIABILITIES AND STAPLED UNITHOLDERS' EQUITY       |  |                        
|Non-current liabilities:                          |  |                        
|Unsecured debentures, net                         |  | $                      
|Cross Currency Interest Rate Swap                 |  |                        
|Deferred tax liabilities                          |  |                        
|Other non-current liabilities                     |  |                        
|                                                  |  |                        
|                                                  |  |                        
|Current liabilities:                              |  |                        
|Bank indebtedness                                 |  |                        
|Intercompany payable                              |  |                        
|Other current liabilities                         |  |                        
|                                                  |  |                        
|Total liabilities                                 |  |                        
|                                                  |  |                        
|Equity:                                           |  |                        
|Stapled unitholders' equity                       |  |                        
|Non-controlling interests                         |  |                        
|                                                  |  |                        
|Total liabilities and stapled unitholders' equity |  | $                      
|                                                  |  |                        

Granite REIT  2013 77

---



|
|

|Income Statement                                                                                                                                  |  | Year ended December 31, 2013 |        
|------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------------------- | -------
|
|Revenues                                                                                                                                          |  | $                            | 203,247
|Operating costs and expenses (income)                                                                                                             |  |                              |        
|General and administrative                                                                                                                        |  |                              | 27,313 
|Interest expense and other financing costs, net                                                                                                   |  |                              | 20,585 
|Other costs and expenses                                                                                                                          |  |                              | 6,041  
|Share of (income) loss of Granite LP                                                                                                              |  |                              |       
|                                                                                                                                                  |  |                              |        
|Income before fair value changes, acquisition transaction costs, gain on Meadows holdback, loss on sale of investment properties and income taxes |  |                              | 149,308
|Fair value losses on investment properties, net                                                                                                   |  |                              | (25,224
|Fair value gains on financial instruments                                                                                                         |  |                              | 72     
|Acquisition transaction costs                                                                                                                     |  |                              | (14,246
|Gain on Meadows holdback                                                                                                                          |  |                              | 5,143  
|Loss on sale of investment properties                                                                                                             |  |                              | (1,122 
|                                                                                                                                                  |  |                              |        
|Income before income taxes                                                                                                                        |  |                              | 113,931
|Income tax recovery                                                                                                                               |  |                              | (31,335
|                                                                                                                                                  |  |                              |        
|Net Income                                                                                                                                        |  |                              | 145,266
|Less net income attributable to non-controlling interests                                                                                         |  |                              | 233    
|                                                                                                                                                  |  |                              |        
|Net income attributable to stapled unitholders                                                                                                    |  | $                            | 145,033
|                                                                                                                                                  |  |                              |        

78 Granite REIT  2013

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|
|

|Statement of Cash Flows                                   |  | Year ended December 31, 2013 |         
|--------------------------------------------------------- |  | ---------------------------- | --------
|
|OPERATING ACTIVITIES                                      |  |                              |         
|Net income                                                |  | $                            | 145,266 
|Items not involving current cash flows                    |  |                              | (16,516 
|Current income tax expense                                |  |                              | 10,490  
|Income taxes paid                                         |  |                              | (14,525 
|Interest expense                                          |  |                              | 19,945  
|Interest paid                                             |  |                              | (17,059 
|Changes in working capital balances                       |  |                              | 293     
|                                                          |  |                              |         
|Cash provided by operating activities                     |  |                              | 127,894 
|                                                          |  |                              |         
|INVESTING ACTIVITIES                                      |  |                              |         
|Business acquisitions (net of cash acquired of $375)      |  |                              | (233,363
|Investment property capital additions                     |  |                              | (28,853 
|Other investing activities                                |  |                              | 8,627   
|                                                          |  |                              |         
|Cash used in investing activities                         |  |                              | (253,589
|                                                          |  |                              |         
|FINANCING ACTIVITIES                                      |  |                              |         
|Distributions paid                                        |  |                              | (90,331 
|Other financing activities                                |  |                              | 252,460 
|                                                          |  |                              |         
|Cash provided by financing activities                     |  |                              | 162,129 
|                                                          |  |                              |         
|Effect of exchange rate changes                           |  |                              | 8,013   
|                                                          |  |                              |         
|Net increase in cash and cash equivalents during the year |  | $                            | 44,447  
|                                                          |  |                              |         

23.  COMMITMENTS AND CONTINGENCIES

---

Granite REIT  2013 79

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Not later than 1 year

$
433Later than 1 year and not later than 5 years


1,197Later than 5 years


394$
2,024




24.  SUBSEQUENT EVENTS

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80 Granite REIT  2013

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