EXHIBIT 2

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GRAPHIC

Audited Combined Financial Statements of
Granite Real Estate Investment Trust and
Granite REIT Inc. For the year ended December 31, 2015

Granite REIT  2015 39

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MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL REPORTING

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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 2015 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 2015
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 controls of high quality. 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, 2015 and based on the framework set forth inInternal Control  Integrated Framework (2013)issued by the Committee of Sponsoring Organizations of the Treadway Commission, internal control over financial reporting was effective. The Trust's Chief Financial Officer and Interim Chief Executive
Officer, in compliance with Section 302 of the U.S. Sarbanes-Oxley Act of 2002 ("SOX"), has 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 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 examination and their opinion 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

Michael
Forsayeth
Chief Financial Officer and Interim Chief Executive Officer

Toronto,
Canada,
March 2, 2016

40 Granite REIT  2015

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REPORT OF INDEPENDENT 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. and subsidiaries (collectively, the "Trust"), which comprise the
combined balance sheets as at December 31, 2015 and December 31, 2014 and the combined statements of income, combined statements of comprehensive income, combined statements of
unitholders' equity and combined statements of cash flows for the years then ended, and a summary of significant accounting policies and other explanatory information.

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 consolidated 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, 2015 and
December 31, 2014 and their financial performance and their cash flows for the years then ended 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, 2015, based on the criteria established inInternal Control  Integrated Framework
(2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 2, 2016 expressed an unqualified opinion on the Trust's
internal control over financial reporting.

LOGO

Chartered
Professional Accountants
Licensed Public Accountants
March 2, 2016
Toronto, Canada

Granite REIT  2015 41

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REPORT OF INDEPENDENT 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 internal control over financial reporting of Granite Real Estate Investment Trust and Granite REIT Inc. and subsidiaries (collectively, the "Trust") as of
December 31, 2015, based on the criteria established inInternal Control  Integrated Framework (2013)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 Responsibility for 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, 2015, based on the criteria established in Internal Control  Integrated
Framework (2013) 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 as of and for the year ended December 31, 2015 of the Trust and our report dated March 2, 2016 expressed an unmodified opinion on those financial statements.

LOGO

Chartered
Professional Accountants
Licensed Public Accountants
March 2, 2016
Toronto, Canada

42 Granite REIT  2015

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Combined Balance Sheets(Canadian dollars in thousands)

|As at December 31,                        |  | Note |  | 2015 |           | 2014
|----------------------------------------- |  | ---- |  | ---- | --------- | ----
|ASSETS                                    |  |      |  |      |           |     
|Non-current assets:                       |  |      |  |      |           |     
|Investment properties                     |  | 4    |  | $    | 2,592,386 |     
|Deferred tax assets                       |  | 11   |  |      | 7,776     |     
|Fixed assets, net                         |  |      |  |      | 1,197     |     
|Other assets                              |  | 5    |  |      | 1,629     |     
|Cross currency interest rate swap         |  | 6    |  |      |          |     
|                                          |  |      |  |      |           |     
|                                          |  |      |  |      | 2,602,988 |     
|Current assets:                           |  |      |  |      |           |     
|Accounts receivable                       |  |      |  |      | 3,849     |     
|Income taxes receivable                   |  | 11   |  |      | 3,172     |     
|Prepaid expenses and other                |  |      |  |      | 1,337     |     
|Restricted cash                           |  |      |  |      | 1,336     |     
|Cash and cash equivalents                 |  |      |  |      | 119,155   |     
|                                          |  |      |  |      |           |     
|Total assets                              |  |      |  | $    | 2,731,837 |     
|                                          |  |      |  |      |           |     
|LIABILITIES AND EQUITY                    |  |      |  |      |           |     
|Non-current liabilities:                  |  |      |  |      |           |     
|Unsecured debentures, net                 |  | 6    |  | $    | 447,657   |     
|Cross currency interest rate swaps        |  | 6    |  |      | 25,252    |     
|Secured long-term debt                    |  | 7    |  |      | 76,117    |     
|Deferred tax liabilities                  |  | 11   |  |      | 207,966   |     
|Other non-current liabilities             |  | 8    |  |      | 12,884    |     
|                                          |  |      |  |      |           |     
|                                          |  |      |  |      | 769,876   |     
|Current liabilities:                      |  |      |  |      |           |     
|Deferred revenue                          |  |      |  |      | 7,061     |     
|Bank indebtedness                         |  | 9    |  |      | 19,376    |     
|Current portion of secured long-term debt |  | 7    |  |      | 20,874    |     
|Accounts payable and accrued liabilities  |  | 10   |  |      | 39,015    |     
|Distributions payable                     |  |      |  |      | 9,027     |     
|Income taxes payable                      |  | 11   |  |      | 7,821     |     
|                                          |  |      |  |      |           |     
|Total liabilities                         |  |      |  |      | 873,050   |     
|                                          |  |      |  |      |           |     
|Equity:                                   |  |      |  |      |           |     
|Stapled unitholders' equity               |  |      |  |      | 1,849,031 |     
|Non-controlling interests                 |  |      |  |      | 9,756     |     
|                                          |  |      |  |      |           |     
|Total equity                              |  |      |  |      | 1,858,787 |     
|                                          |  |      |  |      |           |     
|Total liabilities and equity              |  |      |  | $    | 2,731,837 |     
|                                          |  |      |  |      |           |     
|Commitments and contingencies (note 22)   |  |      |  |      |           |     
|See accompanying notes                    |  |      |  |      |           |     

| |  | On behalf of the Boards:                |  |                                      
| |  | --------------------------------------- |  | -------------------------------------
| |  |                                         |  |                                      
| |  |                                         |  |                                      
| |  | /S/ G. WESLEY VOORHEIS Director/Trustee |  | /S/ GERALD J. MILLER Director/Trustee

Granite REIT  2015 43

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Combined Statements of Income(Canadian dollars in thousands)

|Years ended December 31,                                |                         | Note |     | 2015 |         | 2014    |  
|------------------------------------------------------- | ----------------------- | ---- | --- | ---- | ------- | ------- | -
|Rental revenue and tenant recoveries                    |                         |      |     | $    | 216,299 |         | $
|Property operating costs                                |                         | 14   | (a) |      | 7,062   |         |  
|General and administrative expenses                     |                         | 14   | (b) |      | 28,317  |         |  
|Depreciation and amortization                           |                         |      |     |      | 720     |         |  
|Interest expense and other financing costs, net         |                         | 14   | (c) |      | 18,746  |         |  
|Early redemption costs of unsecured debentures          |                         | 6    | (c) |      |        |         |  
|Foreign exchange gains, net                             |                         |      |     |      | (333    | )       |  
|Fair value losses (gains) on investment properties, net |                         | 4    |     |      | (73,082 | )       |  
|Fair value losses (gains) on financial instruments      |                         | 14   | (d) |      | 1,760   |         |  
|Acquisition transaction costs                           |                         |      |     |      |        |         |  
|Loss (gain) on sale of investment properties            |                         | 4    |     |      | 1,413   |         |  
|                                                        |                         |      |     |      |         |         |  
|Income before income taxes                              |                         |      |     |      | 231,696 |         |  
|Income tax expense                                      |                         | 11   |     |      | 36,156  |         |  
|                                                        |                         |      |     |      |         |         |  
|Net income from continuing operations                   |                         |      |     |      | 195,540 |         |  
|Net income from discontinued operations                 |                         | 15   |     |      |        |         |  
|                                                        |                         |      |     |      |         |         |  
|Net income                                              |                         |      |     | $    | 195,540 |         | $
|                                                        |                         |      |     |      |         |         |  
|Net income attributable to:                             |                         |      |     |      |         |         |  
|Stapled unitholders                                     |                         |      |     |      |         |         |  
|                                                        | Continuing operations   |      |     |      | $       | 193,334 |  
|                                                        | Discontinued operations |      |     |      |         |        |  
|                                                        |                         |      |     |      |         |         |  
|                                                        |                         |      |     |      | 193,334 |         |  
|                                                        |                         |      |     |      |         |         |  
|Non-controlling interests                               |                         |      |     |      |         |         |  
|                                                        | Continuing operations   |      |     |      |         | 2,206   |  
|                                                        | Discontinued operations |      |     |      |         |        |  
|                                                        |                         |      |     |      |         |         |  
|                                                        |                         |      |     |      | 2,206   |         |  
|                                                        |                         |      |     |      |         |         |  
|                                                        |                         |      |     | $    | 195,540 |         | $
|                                                        |                         |      |     |      |         |         |  

See accompanying notes

44 Granite REIT  2015

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Combined Statements of Comprehensive Income(Canadian dollars in thousands)

|Years ended December 31,                                      |                                                                                                                           | Note |    | 2015 |         | 2014    |  
|------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------- | ---- | -- | ---- | ------- | ------- | -
|Net income                                                    |                                                                                                                           |      |    | $    | 195,540 |         | $
|Other comprehensive income (loss):                            |                                                                                                                           |      |    |      |         |         |  
|Foreign currency translation adjustment(1)                    |                                                                                                                           |      |    |      | 165,633 |         |  
|                                                              | Unrealized gain (loss) on cross currency interest rate swaps(1)                                                           |      | 6  | (d)  |         | (21,822 | )
|                                                              | Net foreign exchange loss on net investment hedge, includes income taxes of nil(1)                                        |      |    |      |         | (8,387  | )
|                                                              | Reclassification of cumulative foreign currency translation amounts relating to foreign operation disposed of in the year |      | 15 |      |         |        |  
|                                                              |                                                                                                                           |      |    |      |         |         |  
|Total other comprehensive income (loss)                       |                                                                                                                           |      |    |      | 135,424 |         |  
|                                                              |                                                                                                                           |      |    |      |         |         |  
|Comprehensive income                                          |                                                                                                                           |      |    | $    | 330,964 |         | $
|                                                              |                                                                                                                           |      |    |      |         |         |  
|(1) Items that may be reclassified subsequently to net income |                                                                                                                           |      |    |      |         |         |  
|Comprehensive income attributable to:                         |                                                                                                                           |      |    |      |         |         |  
|Stapled unitholders                                           |                                                                                                                           |      |    |      |         |         |  
|                                                              | Continuing operations                                                                                                     |      |    |      | $       | 327,377 |  
|                                                              | Discontinued operations                                                                                                   |      |    |      |         |        |  
|                                                              |                                                                                                                           |      |    |      |         |         |  
|                                                              |                                                                                                                           |      |    |      | 327,377 |         |  
|                                                              |                                                                                                                           |      |    |      |         |         |  
|Non-controlling interests                                     |                                                                                                                           |      |    |      |         |         |  
|                                                              | Continuing operations                                                                                                     |      |    |      |         | 3,587   |  
|                                                              | Discontinued operations                                                                                                   |      |    |      |         |        |  
|                                                              |                                                                                                                           |      |    |      |         |         |  
|                                                              |                                                                                                                           |      |    |      | 3,587   |         |  
|                                                              |                                                                                                                           |      |    |      |         |         |  
|Comprehensive income                                          |                                                                                                                           |      |    | $    | 330,964 |         | $
|                                                              |                                                                                                                           |      |    |      |         |         |  

See accompanying notes

Granite REIT  2015 45

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

|Year Ended December 31, 2015                         |  | Number
of
Units |     | Stapled Units |           | Contributed
surplus |   | Deficit |  | Accumulated
other
comprehensive
income |          | Total |   | Non-
controlling
interests |  | Total |          
|---------------------------------------------------- |  | --------------- | --- | ------------- | --------- | ------------------- | - | ------- |  | -------------------------------------- | -------- | ----- | - | -------------------------- |  | ----- | ---------
|Equity at January 1, 2015                            |  | 47,017          |     | $             | 2,124,202 |                     | $ | 61,425  |  | $                                      | (642,099 | )     | $ | 86,457                     |  | $     | 1,629,985
|Net income                                           |  |                |     |               |          |                     |   |        |  |                                        | 193,334  |       |   |                           |  |       | 193,334  
|Other comprehensive income                           |  |                |     |               |          |                     |   |        |  |                                        |         |       |   | 134,043                    |  |       | 134,043  
|Distributions                                        |  |                |     |               |          |                     |   |        |  |                                        | (108,327 | )     |   |                           |  |       | (108,327 
|Contributions from non-controlling interests         |  |                |     |               |          |                     |   |        |  |                                        |         |       |   |                           |  |       |         
|Units issued on settlement of deferred stapled units |  |                | (1) |               | 1         |                     |   |        |  |                                        |         |       |   |                           |  |       | 1        
|Units redeemed                                       |  |                | (2) |               | (5        | )                   |   |        |  |                                        |         |       |   |                           |  |       | (5       
|                                                     |  |                 |     |               |           |                     |   |         |  |                                        |          |       |   |                            |  |       |          
|Equity at December 31, 2015                          |  | 47,017          |     | $             | 2,124,198 |                     | $ | 61,425  |  | $                                      | (557,092 | )     | $ | 220,500                    |  | $     | 1,849,031
|                                                     |  |                 |     |               |           |                     |   |         |  |                                        |          |       |   |                            |  |       |          

|
|

|Year Ended December 31, 2014                         |  | Number
of
Units |  | Stapled Units |           | Contributed
surplus |   | Deficit |  | Accumulated
other
comprehensive
income (loss) |          | Total |   | Non-
controlling
interests |   | Total |          
|---------------------------------------------------- |  | --------------- |  | ------------- | --------- | ------------------- | - | ------- |  | --------------------------------------------- | -------- | ----- | - | -------------------------- | - | ----- | ---------
|Equity at January 1, 2014                            |  | 46,945          |  | $             | 2,121,412 |                     | $ | 61,425  |  | $                                             | (608,671 | )     | $ | 97,061                     |   | $     | 1,671,227
|Net income                                           |  |                |  |               |          |                     |   |        |  |                                               | 70,213   |       |   |                           |   |       | 70,213   
|Other comprehensive income (loss)                    |  |                |  |               |          |                     |   |        |  |                                               |         |       |   | (10,604                    | ) |       | (10,604  
|Distributions                                        |  |                |  |               |          |                     |   |        |  |                                               | (103,641 | )     |   |                           |   |       | (103,641 
|Contributions from non-controlling interests         |  |                |  |               |          |                     |   |        |  |                                               |         |       |   |                           |   |       |         
|Units issued on exercise of stapled unit options     |  | 50              |  |               | 1,916     |                     |   |        |  |                                               |         |       |   |                           |   |       | 1,916    
|Units issued on settlement of deferred stapled units |  | 22              |  |               | 874       |                     |   |        |  |                                               |         |       |   |                           |   |       | 874      
|                                                     |  |                 |  |               |           |                     |   |         |  |                                               |          |       |   |                            |   |       |          
|Equity at December 31, 2014                          |  | 47,017          |  | $             | 2,124,202 |                     | $ | 61,425  |  | $                                             | (642,099 | )     | $ | 86,457                     |   | $     | 1,629,985
|                                                     |  |                 |  |               |           |                     |   |         |  |                                               |          |       |   |                            |   |       |          

See accompanying notes

46 Granite REIT  2015

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Combined Statements of Cash Flows(Canadian dollars in thousands)

|Years ended December 31,                                                     |                                                | Note |     | 2015 |          | 2014    |  
|---------------------------------------------------------------------------- | ---------------------------------------------- | ---- | --- | ---- | -------- | ------- | -
|OPERATING ACTIVITIES                                                         |                                                |      |     |      |          |         |  
|Net income from continuing operations                                        |                                                |      |     | $    | 195,540  |         | $
|Items not involving current cash flows                                       |                                                | 17   | (a) |      | (34,435  | )       |  
|Tenant allowance                                                             |                                                |      |     |      |         |         |  
|Current income tax expense                                                   |                                                | 11   | (a) |      | 3,861    |         |  
|Income taxes paid                                                            |                                                |      |     |      | (5,921   | )       |  
|Interest expense                                                             |                                                |      |     |      | 17,326   |         |  
|Interest paid                                                                |                                                |      |     |      | (17,192  | )       |  
|Changes in working capital balances from continuing operations               |                                                | 17   | (b) |      | 665      |         |  
|                                                                             |                                                |      |     |      |          |         |  
|Cash provided by operating activities from continuing operations             |                                                |      |     |      | 159,844  |         |  
|Cash provided by operating activities from discontinued operations           |                                                |      |     |      |         |         |  
|                                                                             |                                                |      |     |      |          |         |  
|Cash provided by operating activities                                        |                                                |      |     |      | 159,844  |         |  
|                                                                             |                                                |      |     |      |          |         |  
|INVESTING ACTIVITIES                                                         |                                                |      |     |      |          |         |  
|Investment properties:                                                       |                                                |      |     |      |          |         |  
|                                                                             | Proceeds on disposal, net                      |      | 4   |      |          | 15,371  |  
|                                                                             | Capital expenditures                           |      |     |      |          | (26,570 | )
|                                                                             | Restricted cash used for property improvements |      |     |      |          | 4,341   |  
|                                                                             | Business acquisitions                          |      | 3   |      |          |        |  
|                                                                             | Acquisition of development land                |      | 3   |      |          | (5,990  | )
|Fixed asset additions                                                        |                                                |      |     |      | (164     | )       |  
|Increase in other assets                                                     |                                                |      |     |      | (50      | )       |  
|Cash provided by (used in) investing activities from discontinued operations |                                                | 4,15 |     |      | (7,725   | )       |  
|                                                                             |                                                |      |     |      |          |         |  
|Cash provided by (used in) investing activities                              |                                                |      |     |      | (20,787  | )       |  
|                                                                             |                                                |      |     |      |          |         |  
|FINANCING ACTIVITIES                                                         |                                                |      |     |      |          |         |  
|Distributions paid                                                           |                                                |      |     |      | (108,327 | )       |  
|Proceeds from unsecured debentures                                           |                                                | 6    |     |      |         |         |  
|Repayment of unsecured debentures                                            |                                                | 6    |     |      |         |         |  
|Proceeds from secured long-term debt                                         |                                                |      |     |      | 17,213   |         |  
|Repayment of secured long-term debt                                          |                                                |      |     |      | (1,063   | )       |  
|Proceeds from bank indebtedness                                              |                                                |      |     |      |         |         |  
|Repayments of bank indebtedness                                              |                                                |      |     |      | (51,656  | )       |  
|Financing costs paid                                                         |                                                |      |     |      | (33      | )       |  
|Contributions from non-controlling interests                                 |                                                |      |     |      | 126      |         |  
|Distributions to non-controlling interests                                   |                                                |      |     |      | (215     | )       |  
|Redemption of stapled units                                                  |                                                |      |     |      | (3       | )       |  
|Proceeds from units issued                                                   |                                                |      |     |      |         |         |  
|                                                                             |                                                |      |     |      |          |         |  
|Cash used in financing activities                                            |                                                |      |     |      | (143,958 | )       |  
|                                                                             |                                                |      |     |      |          |         |  
|Effect of exchange rate changes on cash and cash equivalents                 |                                                |      |     |      | 7,823    |         |  
|                                                                             |                                                |      |     |      |          |         |  
|Net increase in cash and cash equivalents during the year                    |                                                |      |     |      | 2,922    |         |  
|Cash and cash equivalents, beginning of year                                 |                                                |      |     |      | 116,233  |         |  
|                                                                             |                                                |      |     |      |          |         |  
|Cash and cash equivalents, end of year                                       |                                                |      |     | $    | 119,155  |         | $
|                                                                             |                                                |      |     |      |          |         |  

See accompanying notes

Granite REIT  2015 47

---



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 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. The stapled units trade on the Toronto Stock Exchange
and on the New York Stock Exchange. The principal office of Granite REIT is 77 King Street West, Suite 4010, P.O. Box 159, Toronto-Dominion Centre, Toronto, Ontario,
M5K 1H1, Canada. The registered office of Granite GP is Suite 2600, Three Bentall Centre, 595 Burrard Street P.O. Box 49314, Vancouver, British Columbia,
V7X 1L3, Canada.

The
Trust is a Canadian-based REIT engaged in the ownership and management of predominantly industrial, warehouse and logistics properties in North America and Europe. 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 2, 2016.

2.  SIGNIFICANT ACCOUNTING POLICIES

---

The
accounting policies described below have been applied consistently to all periods presented in these combined financial statements.





48 Granite REIT  2015

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Granite REIT  2015 49

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50 Granite REIT  2015

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Granite REIT  2015 51

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52 Granite REIT  2015

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Granite REIT  2015 53

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54 Granite REIT  2015

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Granite REIT  2015 55

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3.  ACQUISITIONS

---

Acquisitions
of income-producing properties and development lands completed during the years ended December 31, 2015 and 2014 consist of the following:





|                                                                                                                     |  | Total |       
|-------------------------------------------------------------------------------------------------------------------- |  | ----- | ------
|Purchase consideration:                                                                                              |  |       |       
|Cash sourced from Credit Facility (note 9)                                                                           |  | $     | 62,635
|Cash on hand                                                                                                         |  |       | 12,514
|                                                                                                                     |  |       |       
|Total consideration paid                                                                                             |  | $     | 75,149
|                                                                                                                     |  |       |       
|Recognized amounts of identifiable assets acquired
and liabilities assumed measured at their respective fair values: | 
|Investment properties                                                                                                |  | $     | 75,864
|Working capital                                                                                                      |  |       | (715  
|                                                                                                                     |  |       |       
|Total identifiable net assets                                                                                        |  | $     | 75,149
|                                                                                                                     |  |       |       



56 Granite REIT  2015

---





4.  INVESTMENT PROPERTIES

---

|As at December 31,                    |  | 2015 |           | 2014
|------------------------------------- |  | ---- | --------- | ----
|Income-Producing Properties           |  | $    | 2,576,562 |     
|Properties and Land Under Development |  |      | 8,651     |     
|Land Held For Development             |  |      | 7,173     |     
|                                      |  |      |           |     
|                                      |  | $    | 2,592,386 |     
|                                      |  |      |           |     

Changes
in investment properties are shown in the following table:

|Years ended December 31,          |  | 2015 |           | 2014 |  
|--------------------------------- |  | ---- | --------- | ---- | -
|
|Balance, beginning of year        |  | $    | 2,275,220 |      | $
|Additions                         |  |      |           |      |  
| Capital expenditures            |  |      | 10,079    |      |  
| Acquisitions (note 3)           |  |      |          |      |  
| Land under development          |  |      |          |      |  
| Completed projects              |  |      | 41,382    |      |  
| Tenant allowances               |  |      |          |      |  
|Fair value gains (losses), net    |  |      | 74,256    |      |  
|Foreign currency translation, net |  |      | 191,960   |      |  
|Disposals                         |  |      | (16,330   | )    |  
|Other changes                     |  |      | (5        | )    |  
|                                  |  |      |           |      |  
|Balance, end of year              |  | $    | 2,576,562 |      | $
|                                  |  |      |           |      |  

During the year ended December 31, 2015, the Trust disposed of six income-producing properties located in North America and Germany for aggregate gross
proceeds of $16.3 million and, on February 2, 2016, disposed of a property in Austria for $5.0 million (note 23). As at December 31, 2015, the Trust incurred a
$1.4 million loss on disposal associated with the selling costs for these dispositions.

On
June 26, 2014, Granite completed the disposition of its portfolio of Mexican properties to a subsidiary of Magna for gross proceeds of $113.7 million
(U.S. $105.0 million) (note 15). In addition, during the year ended December 31, 2014, the Trust disposed of a further four income-producing properties located in the
United States and Germany for aggregate gross proceeds of $37.6 million and incurred a combined loss on disposal of $0.3 million due to the associated selling costs. The Trust
also disposed of one parcel of excess land at an income-producing property in Europe and recorded a gain on disposal of $1.7 million which represents the gross proceeds net of nominal
selling costs.

The
fair value gain during the year ended December 31, 2015, excluding properties sold in the year, was $72.0 million and the fair value loss during the year ended December 31,
2014, excluding properties sold in the year, was $55.0 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. The fair
values of properties and land under development 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 measures its investment properties using valuations prepared by management. The Trust does not measure its investment properties based on

Granite REIT  2015 57

---



valuations
prepared by external appraisers but uses such appraisals as data points, together with other external market information accumulated by management, in arriving at its own conclusions on
values. There has been no change in the valuation methodology during the year.

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 discount and terminal capitalization rates as provided by
independent real estate appraisal firms with representation and expertise in the various jurisdictions in which Granite's investment properties are located. 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 |  | $             | 2,507,060 |                              | $
|+25 basis points |  |               | 2,549,234 |                              |  
|Base rate        |  |               | 2,592,386 |                              |  
|-25 basis points |  |               | 2,636,543 |                              |  
|-50 basis points |  |               | 2,681,733 |                              |  

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

|As at December 31, |  | 2015   |  | 2014 
|------------------ |  | ------ |  | -----
|
|Canada             |  |        |  |      
|Discount rate      |  | 8.25%  |  | 6.97%
|Terminal cap rate  |  | 8.50%  |  | 5.75%
|United States      |  |        |  |      
|Discount rate      |  | 14.00% |  | 6.75%
|Terminal cap rate  |  | 13.00% |  | 6.00%
|Germany            |  |        |  |      
|Discount rate      |  | 9.50%  |  | 7.00%
|Terminal cap rate  |  | 9.50%  |  | 6.00%
|Austria            |  |        |  |      
|Discount rate      |  | 10.00% |  | 8.25%
|Terminal cap rate  |  | 9.50%  |  | 8.75%
|Netherlands        |  |        |  |      
|Discount rate      |  | 7.50%  |  | 7.10%
|Terminal cap rate  |  | 7.30%  |  | 7.25%
|Other              |  |        |  |      
|Discount rate      |  | 10.00% |  | 8.25%
|Terminal cap rate  |  | 10.50% |  | 7.75%

58 Granite REIT  2015

---



Included in investment properties is $11.6 million (December 31, 2014  $11.4 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 22).

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

Not later than 1 year

$
224,041Later than 1 year and not later than 5 years


609,230Later than 5 years


269,224$
1,102,495


5.  OTHER ASSETS

---

Other
assets consist of:

|As at December 31,          |  | 2015 |       | 2014
|--------------------------- |  | ---- | ----- | ----
|Deferred financing costs    |  | $    | 352   |     
|Long-term receivables       |  |      | 589   |     
|Interest rate caps (note 7) |  |      | 90    |     
|Deposits                    |  |      | 598   |     
|                            |  |      |       |     
|                            |  | $    | 1,629 |     
|                            |  |      |       |     

6.  UNSECURED DEBENTURES, NET

---

Unsecured
debentures, net, consist of:

|                  |  |                 |  | 2015 |         | 2014
|----------------- |  | --------------- |  | ---- | ------- | ----
|
|4.613% Debentures |  | October 2, 2018 |  | $    | 198,901 |     
|3.788% Debentures |  | July 5, 2021    |  |      | 248,756 |     
|                  |  |                 |  |      |         |     
|                  |  |                 |  | $    | 447,657 |     
|                  |  |                 |  |      |         |     



Granite REIT  2015 59

---









|As at December 31,                                  |  | 2015 |        | 2014
|--------------------------------------------------- |  | ---- | ------ | ----
|Financial asset                                     |  |      |        |     
|2021 Cross Currency Interest Rate Swap  fair value |  | $    |       |     
|                                                    |  |      |        |     
|Financial liability                                 |  |      |        |     
|2018 Cross Currency Interest Rate Swap  fair value |  | $    | 15,359 |     
|2021 Cross Currency Interest Rate Swap  fair value |  |      | 9,893  |     
|                                                    |  |      |        |     
|                                                    |  | $    | 25,252 |     
|                                                    |  |      |        |     



60 Granite REIT  2015

---





7.  SECURED LONG-TERM DEBT

---

Secured
long-term debt consists of:

|As at December 31,        |  |               |  |               |  | 2015 |        | 2014
|------------------------- |  | ------------- |  | ------------- |  | ---- | ------ | ----
|
|Mortgage payable          |  | June 10, 2017 |  | LIBOR + 2.50% |  | $    | 23,327 |     
|Mortgage payable          |  | May 10, 2018  |  | LIBOR + 2.50% |  |      | 12,059 |     
|2016 Construction Loan    |  | July 25, 2016 |  | LIBOR + 2.25% |  |      | 14,272 |     
|2017 Construction Loan    |  | June 20, 2017 |  | LIBOR + 2.25% |  |      | 20,422 |     
|                          |  |               |  |               |  |      |        |     
|                          |  |               |  |               |  | $    | 70,080 |     
|Less: due within one year |  |               |  |               |  |      | 15,082 |     
|                          |  |               |  |               |  |      |        |     
|                          |  |               |  |               |  | $    | 54,998 |     
|                          |  |               |  |               |  |      |        |     



2016

$
1,1952017


32,0152018


15,890$
49,100






Granite REIT  2015 61

---







8.  OTHER NON-CURRENT LIABILITIES

---

Other
non-current liabilities consist of:

As at December 31,

2015

2014Contingent consideration

$
5,286

$
4,272Tenant allowance payable


7,598


6,537$
12,884

$
10,809


Contingent
consideration was recognized in connection with acquisitions completed in 2013. The fair value of the contingent consideration was estimated using an income approach and is dependent upon
achieving certain predetermined returns over a five year period. This amount is dependent upon a number of assumptions which are subject to change over the period to the date of payment.

The
tenant allowance payable of euro 6.0 million is due in January 2018 and relates to a lease extension at the Eurostar facility in Graz, Austria. The future payable of
euro 6.0 million has been discounted and is being accreted to its face value through a charge to interest expense.

9.  BANK INDEBTEDNESS

---

Effective
December 11, 2014, Granite LP entered into an amended and restated agreement for an unsecured senior revolving credit facility in the amount of $250.0 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, 2018 with the option to extend
the maturity date by one year to February 1, 2019, subject to the agreement of the lenders in respect of a minimum of 662/3% of the aggregate amount committed under the Credit
Facility. The Credit Facility provides Granite LP with the ability to increase the amount of the commitment by an additional aggregate principal amount of up to $50.0 million with the
consent of the participating lenders. The Credit Facility is guaranteed by Granite REIT and Granite GP. 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, Granite LP would be subject to interest at a rate per annum equal to the base rate (i.e. LIBOR, Canadian prime
business rate or euro currency rate) depending on the currency Granite LP borrows in plus an applicable margin of up to 1.45%. At December 31, 2015, Granite LP had
$19.4 million (U.S. $14.0 million) (2014  $62.6 million
(U.S. $54.0 million)) drawn under the Credit Facility and $0.6 million (2014  $1.2 million) in letters of credit issued against the
Credit Facility.

62 Granite REIT  2015

---



10.  ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

---

Accounts
payable and accrued liabilities consist of:

|As at December 31,                               |  | 2015 |        | 2014
|------------------------------------------------ |  | ---- | ------ | ----
|Accounts payable                                 |  | $    | 4,601  |     
|Accrued salaries, incentives and severance       |  |      | 6,555  |     
|Accrued interest payable                         |  |      | 7,128  |     
|Accrued construction payable                     |  |      | 5,158  |     
|Accrued professional fees                        |  |      | 2,487  |     
|Accrued employee unit-based compensation         |  |      | 2,451  |     
|Accrued trustee/director unit-based compensation |  |      | 5,204  |     
|Other accrued liabilities                        |  |      | 5,431  |     
|                                                 |  |      |        |     
|                                                 |  | $    | 39,015 |     
|                                                 |  |      |        |     

11.  INCOME TAXES

---

Years ended December 31,

2015

2014Current income tax:Current taxes

$
5,914

$
6,845Current taxes referring to previous periods


(2,053
)

(3,183
)Withholding taxes and other





5923,861


4,254Deferred income tax:Origination and reversal of temporary differences


33,242


4,559Impact of changes in tax rates





68Reversal of withholding taxes on profits of subsidiaries


(396
)

(592
)Other


(551
)

20332,295


4,238Income tax expense

$
36,156

$
8,492


|
|

Years ended December 31,

2015

2014Income before income taxes

$
231,696

$
72,152Expected income taxes at the Canadian statutory tax rate of 26.5% (2014  26.5%)

$
61,399

$
19,120Income distributed and taxable to unitholders


(26,538
)

(11,178
)Net foreign rate differentials


3,082


651Net change in provisions for uncertain tax positions


(396
)

(1,265
)Net permanent differences


(1,025
)

813Net effect of change in tax rates





68Withholding taxes and other items


(366
)

283Income tax expense

$
36,156

$
8,492


Granite REIT  2015 63

---



|
|

As at December 31,

2015

2014Deferred tax assets:Investment properties

$
1,439

$
1,494Eligible capital expenditures


3,035


3,263Other


3,302


2,449Total deferred tax assets

$
7,776

$
7,206Deferred tax liabilities:Investment properties

$
207,494

$
155,582Withholding tax on undistributed subsidiary profits


1,029


834Other


(557
)

(708
)Total deferred tax liabilities

$
207,966

$
155,708


|
|

Years ended December 31,

2015

2014Balance, beginning of year

$
148,502

$
158,449Deferred tax expense (recovery) recognized in net income


32,295


(9,648
)Foreign currency translation of deferred tax balances


19,393


(299
)$
200,190

$
148,502




64 Granite REIT  2015

---





|
|

As at December 31,

2015

2014Unrecognized tax benefits balance, beginning of year

$
13,882

$
14,165Decreases for tax positions of prior years


(4,041
)

(3,369
)Increases for tax positions of current year


1,188


3,398Foreign currency impact


854


(312
)Unrecognized tax benefits balance, end of year

$
11,883

$
13,882




Major JurisdictionsCanada

2011 through 2015United States

2012 through 2015Mexico

2010 through 2015Austria

2009 through 2015Germany

2012 through 2015Netherlands

2013 through 2015




12.  STAPLED UNITHOLDERS' EQUITY

---





Granite REIT  2015 65

---





2015

2014Number
(000s)

Weighted
Average
Exercise
Price

Number
(000s)

Weighted
Average
Exercise
PriceOptions outstanding, January 1

50

$
32.21

100

$
33.92Exercised






(50
)

35.62Options outstanding and exercisable, December 31

50
(1)
$
32.21

50

$
32.21




2015

2014Number
(000s)

Weighted
Average
Grant Date
Fair Value

Number
(000s)

Weighted
Average
Grant Date
Fair ValueDSUs outstanding, January 1

110

$
34.45

87

$
32.92Granted

25


40.20

23


40.06DSUs outstanding, December 31

135

$
35.51

110

$
34.45




66 Granite REIT  2015

---





2015

2014Number
(000s)

Weighted
Average
Grant Date
Fair Value

Number
(000s)

Weighted
Average
Grant Date
Fair ValueStapled units outstanding, January 1

97

$
38.19

62

$
37.42New grants

34


42.40

57


39.07Forfeited(1)

(59
)

37.16




Settled(2)




39.01

(22
)

38.39Stapled units outstanding, December 31(3)

72

$
41.03

97

$
38.19






As at December 31,

2015

2014Foreign currency translation gains on investments in subsidiaries, net of related hedging activities and non-controlling interests(1)

$
247,612

$
91,747Losses on derivatives designated as net investment hedges


(27,112
)

(5,290
)$
220,500

$
86,457


13.  DISTRIBUTIONS TO STAPLED UNITHOLDERS

---

Total
distributions declared to stapled unitholders in the year ended December 31, 2015 were $108.3 million (2014  $103.6 million) or $2.30
per stapled unit (2014  $2.21 per stapled unit). Distributions payable at December 31, 2015 of $9.0 million, representing the December 2015
distribution, were paid on January 15, 2016. The distribution declared in January 2016 in the amount of $9.0 million was paid on February 16, 2016 and the distribution
declared in February 2016 will be paid on March 15, 2016.

Granite REIT  2015 67

---



14.  COSTS AND EXPENSES (INCOME)

---

Years ended December 31,

2015

2014Non-recoverable from tenants:Property taxes and utilities

$
794

$
1,140Legal


827


1,106Consulting


477


119Environmental and appraisals


403


563Repairs and maintenance


782


515Other


1,114


1,0614,397


4,504Recoverable from tenants:Property taxes and utilities


1,516


1,204Repairs and maintenance


355


384Other


794


7842,665


2,372Property operating costs

$
7,062

$
6,876


|
|

Years ended December 31,

2015

2014Salaries and benefits

$
16,793

$
14,647Audit, legal and consulting


4,964


4,173Trustee/director fees and related expenses


1,817


988Unit-based compensation for employees and trustees/directors


(89
)

3,698Other


4,832


4,555$
28,317

$
28,061


Years ended December 31,

2015

2014Interest, accretion and costs on debentures

$
14,333

$
20,921Interest on mortgages payable and construction loans


2,493


1,546Amortization of deferred financing costs


196


447Other interest and accretion charges


2,095


1,57219,117


24,486Capitalized interest


(85
)

(99
)Interest income


(286
)

(420
)$
18,746

$
23,967


Years ended December 31,

2015

2014Foreign exchange forward contracts, net

$
1,445

$
(537
)Interest rate caps


315


360$
1,760

$
(177
)


68 Granite REIT  2015

---



15.  DISCONTINUED OPERATIONS

---

During
the second quarter of 2014, Granite disposed of its portfolio of Mexican properties to a subsidiary of Magna for gross proceeds of $113.7 million (U.S. $105.0 million) and
incurred a $5.1 million loss on disposal due to closing adjustments and associated selling costs. As the Mexican properties represented a significant geographical area of operations, the Trust
has retroactively presented the Mexican portfolio as discontinued operations in the combined financial statements.

Granite's
results of operations from discontinued operations are as follows:

Years ended December 31,

Note

2015

2014Rental revenue



$


$
7,079Operating costs and expenses







90Fair value losses on investment properties, net







4Income before income taxes







6,985Income tax expense







(1,702
)Income from discontinued operations before gain on sale of disposed properties







5,283Loss on sale of investment properties

4





(5,071
)Reclassification of cumulative foreign currency translation amounts relating to foreign operation disposed of in the year







5,722Income tax recovery







823Gain on sale of disposed properties







1,474Net income from discontinued operations



$


$
6,757


During
the year ended December 31, 2015, Granite paid $7.7 million (2014  $5.1 million) of current income tax installments associated with
the taxable gain arising on the sale of the portfolio of Mexican properties.

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 Financial Officer and Interim Chief Executive Officer. The following tables present certain information with respect to geographic segmentation:

Revenues

|Years ended December 31, |  | 2015 |         | 2014
|------------------------ |  | ---- | ------- | ----
|Canada                   |  | $    | 63,939  |     
|United States            |  |      | 57,177  |     
|Austria                  |  |      | 57,778  |     
|Germany                  |  |      | 24,362  |     
|Netherlands              |  |      | 9,234   |     
|Other Europe             |  |      | 3,809   |     
|                         |  |      |         |     
|                         |  | $    | 216,299 |     
|                         |  |      |         |     

For
the year ended December 31, 2015, revenues from Magna were approximately 81% (2014  83%) of the Trust's total revenues.

Granite REIT  2015 69

---



Investment properties

|As at December 31, |  | 2015 |           | 2014
|------------------ |  | ---- | --------- | ----
|Canada             |  | $    | 671,441   |     
|United States      |  |      | 739,387   |     
|Austria            |  |      | 735,885   |     
|Germany            |  |      | 272,237   |     
|Netherlands        |  |      | 125,125   |     
|Other Europe       |  |      | 48,311    |     
|                   |  |      |           |     
|                   |  | $    | 2,592,386 |     
|                   |  |      |           |     

17.  DETAILS OF CASH FROM OPERATING ACTIVITIES FROM CONTINUING OPERATIONS

---

Years ended December 31,

2015

2014Straight-line rent adjustment

$
5,456

$
4,567Unit-based compensation expense (recovery)


(89
)

3,698Fair value losses (gains) on investment properties


(73,082
)

51,620Depreciation and amortization


720


621Fair value losses (gains) on financial instruments


1,760


(177
)Loss (gain) on sale of investment properties


1,413


(1,416
)Amortization of issuance costs and discount accretion of debentures


841


1,655Amortization of deferred financing costs


196


447Deferred income taxes


32,295


4,238Other


(3,945
)

(750
)$
(34,435
)
$
64,503


Years ended December 31,

2015

2014Accounts receivable

$
(1,458
)
$
136Prepaid expenses and other


92


67Accounts payable and accrued liabilities


1,438


(6,401
)Deferred revenue


1,293


42Restricted cash


(700
)

$
665

$
(6,156
)




70 Granite REIT  2015

---



18.  FAIR VALUE AND RISK MANAGEMENT

---



Fair value
through
profit
or loss

Loans and receivables/
other financial liabilities

Total

TotalMeasurement basis
(Fair value)

(Amortized cost)

(Fair value)

(Carrying Value)

(Fair Value)Financial assetsOther assets
$
90
(1)
$
589
(2)
$
589

$
679

$
679Accounts receivable




3,849


3,849


3,849


3,849Prepaid expenses and other

24
(3)







24


24Restricted cash




1,336


1,336


1,336


1,336Cash and cash equivalents




119,155


119,155


119,155


119,155$
114

$
124,929

$
124,929

$
125,043

$
125,043Financial liabilitiesUnsecured debentures, net
$


$
447,657

$
467,255

$
447,657

$
467,255Cross currency interest rate swaps

25,252








25,252


25,252Secured long-term debt




96,991


96,991


96,991


96,991Other non-current liabilities




12,884


12,884


12,884


12,884Bank indebtedness




19,376


19,376


19,376


19,376Accounts payable and accrued liabilities

932
(4)

38,083


38,083


39,015


39,015Distributions payable




9,027


9,027


9,027


9,027$
26,184

$
624,018

$
643,616

$
650,202

$
669,800




Granite REIT  2015 71

---







Fair value
through
profit
or loss

Loans and receivables/
other financial liabilities

Total

TotalMeasurement basis
(Fair value)

(Amortized cost)

(Fair value)

(Carrying Value)

(Fair Value)Financial assetsOther assets
$
362
(5)
$
533
(6)
$
533

$
895

$
895Cross currency interest rate swap

481








481


481Accounts receivable




2,247


2,247


2,247


2,247Prepaid expenses and other

586
(7)







586


586Restricted cash




4,782


4,782


4,782


4,782Cash and cash equivalents




116,233


116,233


116,233


116,233$
1,429

$
123,795

$
123,795

$
125,224

$
125,224Financial liabilitiesUnsecured debentures, net
$


$
447,049

$
468,700

$
447,049

$
468,700Cross currency interest rate swap

3,829








3,829


3,829Secured long-term debt




66,079


66,079


66,079


66,079Other non-current liabilities




10,809


10,809


10,809


10,809Bank indebtedness




62,645


62,645


62,645


62,645Accounts payable and accrued liabilities

49
(8)

36,600


36,600


36,649


36,649Distributions payable




9,027


9,027


9,027


9,027$
3,878

$
632,209

$
653,860

$
636,087

$
657,738




72 Granite REIT  2015

---







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, 2015

Level 1

Level 2

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

$


$


$
2,592,386Interest rate caps included in other assets





90


Foreign exchange forward contracts included in prepaid expenses and other





24


Liabilities measured or disclosed at fair valueUnsecured debentures, net


467,255





Cross currency interest rate swaps





25,252


Other non-current liabilities








12,884Secured long-term debt





96,991


Bank indebtedness





19,376


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





932


Net assets (liabilities) measured at fair value

$
(467,255
)
$
(142,437
)
$
2,579,502


Granite REIT  2015 73

---





|
|

As at December 31, 2014

Level 1

Level 2

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

$


$


$
2,310,378Cross currency interest rate swap





481


Interest rate caps included in other assets





362


Foreign exchange forward contracts included in prepaid expenses and other





586


Liabilities measured or disclosed at fair valueUnsecured debentures, net


468,700





Cross currency interest rate swap





3,829


Other non-current liabilities








10,809Secured long-term debt





66,079


Bank indebtedness





62,645


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





49


Net assets (liabilities) measured at fair value

$
(468,700
)
$
(131,173
)
$
2,299,569






74 Granite REIT  2015

---











Granite REIT  2015 75

---





(in thousands)



Payments due by yearAs at December 31, 2015

Total

2016

2017

2018

2019

2020

ThereafterUnsecured debentures

$
450,000

$


$


$
200,000

$


$


$
250,000Cross currency interest rate swaps


25,252








15,359








9,893Secured long-term debt(1)


97,359


21,010


60,460


15,889








Bank indebtedness(1)


19,376








19,376








Interest payments(2):Unsecured debentures, net of cross currency interest rate swap savings


63,864


14,432


14,432


14,432


6,873


6,873


6,822Secured long-term debt


3,850


2,457


1,227


166








Bank indebtedness


694


333


333


28








Contingent consideration


5,746








5,746








Tenant allowance payable


9,017








9,017








Accounts payable and accrued liabilities


39,015


38,498


435


82








Distributions payable


9,027


9,027














$
723,200

$
85,757

$
76,887

$
280,095

$
6,873

$
6,873

$
266,715




19.  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,                                      |  | 2015 |           | 2014 |  
|------------------------------------------------------- |  | ---- | --------- | ---- | -
|Unsecured debentures, net                               |  | $    | 447,657   |      | $
|Cross currency interest rate swap  financial liability |  |      | 25,252    |      |  
|Cross currency interest rate swap  financial asset     |  |      |          |      |  
|Secured long-term debt                                  |  |      | 96,991    |      |  
|Bank indebtedness                                       |  |      | 19,376    |      |  
|                                                        |  |      |           |      |  
|Total debt                                              |  |      | 589,276   |      |  
|Stapled unitholders' equity                             |  |      | 1,849,031 |      |  
|                                                        |  |      |           |      |  
|Total managed capital                                   |  | $    | 2,438,307 |      | $
|                                                        |  |      |           |      |  

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:



76 Granite REIT  2015

---





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 2018 Debentures, the 2021 Debentures, property specific mortgage financing and the Construction Loans and each of these
components have 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 coverage ratio, unencumbered asset ratio, maximum payout ratio and minimum equity amounts. The Trust monitors these provisions and covenants and was in compliance with their respective
requirements at December 31, 2015.

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 2015, the Trust provided to its unitholders a monthly distribution of $0.192 per stapled unit. The Board determined this distribution level having
considered, among other factors, estimated 2015 and 2016 cash generated 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.

20.  RELATED PARTY TRANSACTIONS

---

Key
management personnel include the Trustees/Directors, the Interim Chief Executive Officer and Chief Financial Officer and the former Chief Executive Officer. Information with respect to the
Trustees/Directors fees is included in notes 12(b) and 14(b). The compensation paid or payable to the Trust's key management personnel for services was as follows:

|Years ended December 31,                                |  | 2015 |        | 2014
|------------------------------------------------------- |  | ---- | ------ | ----
|Salaries, incentives, short-term benefits and severance |  | $    | 4,857  |     
|Unit-based compensation expense (recovery)              |  |      | (1,496 | )   
|                                                        |  |      |        |     
|                                                        |  | $    | 3,361  |     
|                                                        |  |      |        |     

For the year ended December 31, 2015, salaries, incentives, short-term benefits and severance includes $3.5 million of severance expense
associated with the departure of Granite's former Chief Executive Officer. Accounts payable and accrued liabilities at December 31, 2015 includes $2.1 million of the remaining severance
payable. Included in the unit-based compensation recovery of $1.5 million is a $1.7 million recovery from the surrender of the former Chief Executive Officer's stapled units.

Granite REIT  2015 77

---



21.  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. 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, 2015
|----------------------------- |  | -----------------------
|
|ASSETS                        |  |                        
|Non-current assets:           |  |                        
|Investment properties         |  | $                      
|Investment in Granite LP      |  |                        
|Other non-current assets      |  |                        
|                              |  |                        
|                              |  |                        
|Current assets:               |  |                        
|Other current assets          |  |                        
|Intercompany receivable(1)    |  |                        
|Cash and cash equivalents     |  |                        
|                              |  |                        
|Total assets                  |  | $                      
|                              |  |                        
|LIABILITIES AND EQUITY        |  |                        
|Non-current liabilities:      |  |                        
|Unsecured debentures, net     |  | $                      
|Other non-current liabilities |  |                        
|                              |  |                        
|                              |  |                        
|Current liabilities:          |  |                        
|Bank indebtedness             |  |                        
|Intercompany payable(1)       |  |                        
|Other current liabilities     |  |                        
|                              |  |                        
|Total liabilities             |  |                        
|                              |  |                        
|Equity:                       |  |                        
|Stapled unitholders' equity   |  |                        
|Non-controlling interests     |  |                        
|                              |  |                        
|Total liabilities and equity  |  | $                      
|                              |  |                        

78 Granite REIT  2015

---



|Balance Sheet                 |  | As at December 31, 2014
|----------------------------- |  | -----------------------
|
|ASSETS                        |  |                        
|Non-current assets:           |  |                        
|Investment properties         |  | $                      
|Investment in Granite LP      |  |                        
|Other non-current assets      |  |                        
|                              |  |                        
|                              |  |                        
|Current assets:               |  |                        
|Other current assets          |  |                        
|Intercompany receivable(1)    |  |                        
|Cash and cash equivalents     |  |                        
|                              |  |                        
|Total assets                  |  | $                      
|                              |  |                        
|LIABILITIES AND EQUITY        |  |                        
|Non-current liabilities:      |  |                        
|Unsecured debentures, net     |  | $                      
|Other non-current liabilities |  |                        
|                              |  |                        
|                              |  |                        
|Current liabilities:          |  |                        
|Bank indebtedness             |  |                        
|Intercompany payable(1)       |  |                        
|Other current liabilities     |  |                        
|                              |  |                        
|Total liabilities             |  |                        
|                              |  |                        
|Equity:                       |  |                        
|Stapled unitholders' equity   |  |                        
|Non-controlling interests     |  |                        
|                              |  |                        
|Total liabilities and equity  |  | $                      
|                              |  |                        

Granite REIT  2015 79

---



|Income Statement                                          |  | Year Ended December 31, 2015 |        
|--------------------------------------------------------- |  | ---------------------------- | -------
|
|Revenues                                                  |  | $                            | 216,299
|General and administrative expenses                       |  |                              | 28,317 
|Interest expense and other financing costs, net           |  |                              | 18,746 
|Other costs and expenses, net                             |  |                              | 7,449  
|Share of (income) loss of Granite LP                      |  |                              |       
|Fair value gains on investment properties, net            |  |                              | (73,082
|Fair value losses on financial instruments                |  |                              | 1,760  
|Loss on sale of investment properties                     |  |                              | 1,413  
|                                                          |  |                              |        
|Income before income taxes                                |  |                              | 231,696
|Income tax expense                                        |  |                              | 36,156 
|                                                          |  |                              |        
|Net income                                                |  |                              | 195,540
|                                                          |  |                              |        
|Less net income attributable to non-controlling interests |  |                              | 2,208  
|                                                          |  |                              |        
|Net income attributable to stapled unitholders            |  | $                            | 193,332
|                                                          |  |                              |        

80 Granite REIT  2015

---



|Income Statement                                          |  | Year Ended December 31, 2014 |        
|--------------------------------------------------------- |  | ---------------------------- | -------
|
|Revenues                                                  |  | $                            | 207,410
|General and administrative expenses                       |  |                              | 28,061 
|Interest expense and other financing costs, net           |  |                              | 23,967 
|Early redemption costs of unsecured debentures            |  |                              | 28,580 
|Other costs and expenses, net                             |  |                              | 4,434  
|Share of (income) loss of Granite LP                      |  |                              |       
|Fair value losses on investment properties, net           |  |                              | 51,620 
|Fair value gains on financial instruments                 |  |                              | (177   
|Acquisition transaction costs                             |  |                              | 189    
|Gain on sale of investment properties                     |  |                              | (1,416 
|                                                          |  |                              |        
|Income before income taxes                                |  |                              | 72,152 
|Income tax expense                                        |  |                              | 8,492  
|                                                          |  |                              |        
|Net income from continuing operations                     |  |                              | 63,660 
|Net income from discontinued operations                   |  |                              | 6,757  
|                                                          |  |                              |        
|Net income                                                |  |                              | 70,417 
|                                                          |  |                              |        
|Less net income attributable to non-controlling interests |  |                              | 205    
|                                                          |  |                              |        
|Net income attributable to stapled unitholders            |  | $                            | 70,212 
|                                                          |  |                              |        

Granite REIT  2015 81

---



|Statement of Cash Flows                                        |  | Year Ended December 31, 2015 |         
|-------------------------------------------------------------- |  | ---------------------------- | --------
|
|OPERATING ACTIVITIES                                           |  |                              |         
|Net income from continuing operations                          |  | $                            | 195,540 
|Items not involving current cash flows                         |  |                              | (34,435 
|Changes in working capital balances                            |  |                              | 583     
|Other operating activities                                     |  |                              | (1,926  
|                                                               |  |                              |         
|Cash provided by operating activities                          |  |                              | 159,762 
|                                                               |  |                              |         
|INVESTING ACTIVITIES                                           |  |                              |         
|Investment property capital additions                          |  |                              | (26,570 
|Acquisition of development land                                |  |                              | (5,990  
|Other investing activities                                     |  |                              | 19,498  
|Cash used in investing activities from discontinued operations |  |                              | (7,725  
|                                                               |  |                              |         
|Cash used in investing activities                              |  |                              | (20,787 
|                                                               |  |                              |         
|FINANCING ACTIVITIES                                           |  |                              |         
|Distributions paid                                             |  |                              | (108,327
|Other financing activities                                     |  |                              | (35,631 
|                                                               |  |                              |         
|Cash used in financing activities                              |  |                              | (143,958
|                                                               |  |                              |         
|Effect of exchange rate changes                                |  |                              | 7,823   
|                                                               |  |                              |         
|Net increase in cash and cash equivalents during the year      |  | $                            | 2,840   
|                                                               |  |                              |         

82 Granite REIT  2015

---



|Statement of Cash Flows                                            |  | Year Ended December 31, 2014 |         
|------------------------------------------------------------------ |  | ---------------------------- | --------
|
|OPERATING ACTIVITIES                                               |  |                              |         
|Net income from continuing operations                              |  | $                            | 63,660  
|Items not involving current cash flows                             |  |                              | 64,503  
|Changes in working capital balances from continuing operations     |  |                              | (6,229  
|Other operating activities                                         |  |                              | (34,616 
|                                                                   |  |                              |         
|Cash provided by operating activities from continuing operations   |  |                              | 87,318  
|Cash provided by operating activities from discontinued operations |  |                              | 5,472   
|                                                                   |  |                              |         
|Cash provided by operating activities                              |  |                              | 92,790  
|                                                                   |  |                              |         
|INVESTING ACTIVITIES                                               |  |                              |         
|Investment property capital additions                              |  |                              | (43,701 
|Acquisition of development land                                    |  |                              | (3,831  
|Business acquisitions                                              |  |                              | (75,149 
|Other investing activities                                         |  |                              | 38,438  
|Cash provided by investing activities from discontinued operations |  |                              | 104,370 
|                                                                   |  |                              |         
|Cash provided by investing activities                              |  |                              | 20,127  
|                                                                   |  |                              |         
|FINANCING ACTIVITIES                                               |  |                              |         
|Distributions paid                                                 |  |                              | (103,205
|Other financing activities                                         |  |                              | 12,492  
|                                                                   |  |                              |         
|Cash used in financing activities                                  |  |                              | (90,713 
|                                                                   |  |                              |         
|Effect of exchange rate changes                                    |  |                              | (1,564  
|                                                                   |  |                              |         
|Net increase in cash and cash equivalents during the year          |  | $                            | 20,640  
|                                                                   |  |                              |         

Granite REIT  2015 83

---



22.  COMMITMENTS AND CONTINGENCIES

---

Not later than 1 year

$
458Later than 1 year and not later than 5 years


576Later than 5 years


173$
1,207




23.  SUBSEQUENT EVENT

---

On February 2, 2016, the Trust sold a vacant property located in Austria for gross proceeds of approximately $5.0 million.

84 Granite REIT  2015

---



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