EXHIBIT 3

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Management's Discussion and Analysis of Results of Operations and Financial Position

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For the three month period and year ended December 31, 2013

Management's Discussion and Analysis of Results of Operations and Financial Position ("MD&A") of Granite Real Estate Investment Trust ("Granite REIT") and Granite
REIT Inc. (collectively "Granite" or the "Trust") summarizes the significant factors affecting the combined operating results, financial condition, liquidity and cash flows of the Trust for the
three month period and year ended December 31, 2013. Unless otherwise noted, all amounts are in Canadian dollars ("Cdn. dollars") and all tabular amounts are in millions of Cdn. dollars. This
MD&A should be read in conjunction with the accompanying audited combined financial statements for the year ended December 31, 2013. This MD&A is prepared as at March 5, 2014. Additional
information relating to Granite, including the Annual Information Form ("AIF") for fiscal 2013 can be obtained from the Trust's website at www.granitereit.com, on SEDAR at
www.sedar.com and on EDGAR at www.sec.gov.

Effective
January 1, 2013, Granite adopted International Financial Reporting Standards ("IFRS") as issued by the International Accounting Standards Board as the basis of financial reporting
commencing with our interim financial statements for the three month period ended March 31, 2013 and using January 1, 2012 as our transition date. Accordingly, financial data provided in
this MD&A for the three month period and year ended December 31, 2013 has been prepared in accordance with IFRS. Fiscal 2012 comparative results have also been reported under IFRS.

In
this MD&A, unless otherwise specified or the context otherwise indicates, "Granite", the "Trust", "we", "us" and "our" refer to Granite REIT and Granite REIT Inc. combined and their
subsidiaries, for periods subsequent to January 3, 2013 and to Granite Real Estate Inc. and its subsidiaries, as predecessor entities, for periods on or prior to
January 3, 2013.

OVERVIEW

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

Granite's
investment properties consist of income-producing properties, properties and land under development as well as land held for development (see"INVESTMENT
PROPERTIES"). Our income-producing properties consist of light industrial properties, heavy industrial manufacturing facilities, corporate offices, warehouse and logistics
properties, product development and engineering centres and test facilities in 9 countries: Canada, the United States, Mexico, Austria, Germany, the Netherlands, the Czech Republic, the
United Kingdom and Spain. The lease payments are primarily denominated in three currencies: the Cdn. dollar, the U.S. dollar and the euro.

SIGNIFICANT MATTERS

Acquisitions

The Trust completed the following acquisitions during the year ended December 31, 2013:

On
February 13, 2013, the Trust acquired a 90% interest in two income-producing multipurpose industrial properties located in Logan, New Jersey and Savannah, Georgia consisting of
0.7 million square feet for approximately $36.6 million. The acquisition was funded through a combination of cash of $14.8 million, which was substantially sourced from
Granite's credit facility, and first mortgage debt of $21.4 million representing Granite's proportionate share of the total first mortgage debt on the two properties. The purchase price
includes a future contingent consideration payment estimated at $0.4 million which is expected to be settled in cash on or about February 13, 2018. The remaining 10% interest is owned by

2 Granite REIT  2013

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Dermody
Properties LLC ("Dermody"). The annualized lease payments for the two properties are $3.4 million at December 31, 2013 (see"LEASING
PROFILE  Annualized Lease Payments").

On
April 15, 2013, the Trust acquired a 90% interest in development lands located in Bethel Township, Berks County, Pennsylvania for approximately $8.9 million. The purchase price
includes $7.2 million funded from cash on hand and a future contingent consideration payment estimated at $1.7 million which is expected to be settled in cash on or about
April 15, 2018. The lands, consisting of approximately 89.2 acres, are located within a high quality new business park and are fully improved, entitled and zoned for 0.8 million
square feet of industrial, warehouse and distribution use. The lands may be developed on a speculative basis by Granite and Dermody who owns the remaining 10% interest.

On
May 8, 2013, the Trust acquired a 90% interest in a 35.9 acre land site located in Shepherdsville, Kentucky for approximately $7.3 million. The purchase price includes
$6.1 million paid in cash, which was funded using Granite's credit facility and a future contingent consideration payment estimated at $1.2 million which is expected to be settled in
cash on or about May 8, 2018. The site is being developed into a 0.6 million square foot multipurpose facility on a speculative basis by Granite and Dermody who owns the remaining
10% interest (see "INVESTMENT PROPERTIES  Properties and Land Under Development").

On
May 10, 2013, the Trust acquired a 95% interest in a 0.3 million square foot income-producing multipurpose industrial property located in Portland, Oregon for approximately
$21.1 million. The acquisition was funded through a combination of cash of $8.7 million, which was drawn from Granite's credit facility, and first mortgage debt of $12.1 million
representing Granite's proportionate share of the total first mortgage debt on the property. The purchase price includes a future contingent consideration payment estimated at $0.3 million
which is expected to be settled in cash on or about May 10, 2018. The remaining 5% interest is owned by Dermody. The annualized lease payments for this acquisition are $1.7 million at
December 31, 2013.

On
August 9, 2013, the Trust purchased a 0.6 million square foot logistics-distribution facility in West Chester, Ohio for a purchase price of $21.5 million. The
acquisition was funded through a combination of a draw from Granite's credit facility and cash on hand. The property includes 11.0 acres of expansion/development land. The annualized lease
payment for this property is $1.8 million at December 31, 2013.

During
the fourth quarter of 2013, the Trust acquired a European portfolio consisting of 2.5 million square feet in four logistics-distribution income-producing properties located in
Germany and three logistics-distribution income-producing properties located in the Netherlands. The Trust acquired six of the properties on October 16, 2013 and the remaining property was
acquired on November 1, 2013. The aggregate purchase price of $179.2 million, excluding acquisition costs, was primarily funded using proceeds from the issuance of debentures and a
corresponding cross currency interest rate swap (see "SIGNIFICANT MATTERS  Series 1 Senior
Debentures"). All of the properties are fully occupied and annualized lease payments for the German and Netherlands portfolios are $16.6 million at
December 31, 2013.

On
November 27, 2013, the Trust acquired a 0.1 million square foot logistics-distribution facility in Germany for $9.5 million, excluding acquisition costs. The acquisition
was funded with proceeds from the issuance of debentures and a corresponding cross currency interest rate swap (see "SIGNIFICANT
MATTERS  Series 1 Senior Debentures"). The annualized lease payment for this property is $0.8 million at
December 31, 2013.

Series 1 Senior Debentures

On October 2, 2013, Granite REIT Holdings Limited Partnership, a wholly owned subsidiary of Granite, issued at par $200.0 million of 4.613% Series 1 senior
debentures ("2018 Debentures") due October 2, 2018. Interest on the 2018 Debentures is payable semi-annually in arrears on April 2 and October 2 of each year, commencing on
April 2, 2014. The 2018 Debentures rank equally with all of the Trust's existing and future unsubordinated and unsecured indebtedness and are guaranteed by Granite and certain of its
subsidiaries.

On
October 7, 2013, the Trust entered into a cross currency interest rate swap to exchange the $200.0 million proceeds and 4.613% interest payments from the 2018 Debentures to
euro 142.3 million at 3.56%. Under the terms of the swap, the Trust will repay the principal proceeds received of euro 142.3 million for $200.0 million

Granite REIT  2013 3

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on
October 2, 2018. The proceeds from the 2018 Debentures and corresponding cross currency interest rate swap were used to finance the European acquisitions.

Completion of REIT Conversion

Effective January 3, 2013, Granite completed its conversion from a corporate structure to a stapled unit REIT structure.

The
conversion to a REIT was implemented pursuant to a court approved plan of arrangement under theBusiness Corporations Act(Quebec). Under the plan
of arrangement, all of the common shares of Granite Real Estate Inc. 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 REIT Inc. Effective January 4, 2013, the stapled units started trading on the Toronto Stock Exchange under the symbol "GRT.UN" and on the New York Stock Exchange
under the symbol "GRP.U". Granite REIT and Granite REIT Inc. are reporting issuers under Canadian provincial and territorial securities laws and file reports with the United States
Securities & Exchange Commission (the "SEC") under U.S. securities laws and, through Granite REIT Holdings Limited Partnership and its subsidiaries, are carrying on the business
previously conducted by Granite Real Estate Inc. The assets, liabilities and operations of the new combined stapled unit structure are comprised of all the assets, liabilities and operations of
Granite Real Estate Inc.

Transition to International Financial Reporting Standards

The Trust adopted IFRS as its basis of financial reporting effective for the first quarter of 2013. The Trust's reporting under the IFRS accounting framework has had a
significant impact on the combined financial statements. IFRS is premised on a conceptual framework similar to United States generally accepted accounting principles ("U.S. GAAP");
however, significant differences exist in certain areas of recognition, measurement and disclosure. While adoption of IFRS has not had an impact on the Trust's reported net cash flows, there have been
material impacts on the combined balance sheets and statements of income, which are discussed further in"TRANSITION TO IFRS  KEY
CHANGES". In particular, Granite's balance sheets reflect the revaluation of all of its investment properties to fair value.

Foreign Currencies

Fluctuations in the Cdn. dollar's value relative to other currencies will result in fluctuations in the reported Cdn. dollar value of revenues, expenses, income, cash
flows, assets and liabilities. At December 31, 2013, approximately 71% of Granite's rental revenues are denominated in currencies other than the Cdn. dollar
(see "LEASING PROFILE  Annualized Lease Payments"). As such, material changes in the value of the
Cdn. dollar relative to these foreign currencies (primarily the euro and U.S. dollar) may have a significant impact on the financial results.

The
following table reflects the changes in the average exchange rates during the three month periods and years ended December 31, 2013 and 2012, as well as the exchange rates as at
December 31, 2013, September 30, 2013 and December 31, 2012, between the most common currencies in which the Trust conducts business and the Cdn. dollar.

|                                  |  | Average Exchange Rates
|--------------------------------- |  | ----------------------
|
|
|1 U.S. dollar equals Cdn. dollars |  | 1.050                 
|1 euro equals Cdn. dollars        |  | 1.430                 

4 Granite REIT  2013

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|
|

|                                  |  | Exchange Rates as at
|--------------------------------- |  | --------------------
|
|1 U.S. dollar equals Cdn. dollars |  | 1.064               
|1 euro equals Cdn. dollars        |  | 1.466               

The results of operations and financial position of all U.S. and most European operations are translated into Cdn. dollars using the exchange rates shown in the
preceding table. The changes in these foreign exchange rates impacted the reported Cdn. dollar amounts of the Trust's revenues, expenses, income, assets and liabilities. From time to time, Granite may
enter into derivative financial arrangements for currency hedging purposes, but the Trust's policy is not to utilize such arrangements for speculative purposes. Throughout this MD&A, reference is
made, where significant, to the impact of foreign exchange fluctuations on reported Cdn. dollar amounts.

INVESTMENT PROPERTIES

Granite's investment properties consist of income-producing properties, properties and land under development and land held for development. The fair values of
the investment properties are as follows:

|                                      |  | December 31,
2013 |         | December 31,
2012
|------------------------------------- |  | ----------------- | ------- | -----------------
|Income-producing properties           |  | $                 | 2,325.6 |                  
|Properties and land under development |  |                   | 18.1    |                  
|Land held for development             |  |                   | 8.2     |                  
|                                      |  |                   |         |                  
|Investment properties                 |  | $                 | 2,351.9 |                  
|                                      |  |                   |         |                  

During
the year ended December 31, 2013, investment properties increased by $408.2 million primarily as a result of (i) an increase of $286.1 million due to the acquisition
of properties, (ii) an increase of $136.4 million due to foreign exchange movements which included $102.0 million from the strengthening of the euro against the Cdn. dollar and
$34.4 million from the strengthening of the U.S. dollar against the Cdn. dollar and (iii) capital expenditures totalling $28.0 million. These increases were partially
offset by (i) net fair value losses of $25.2 million which resulted from changes described below and (ii) as part of a
strategic repositioning of our property portfolio, the disposal of four properties located in Canada, the United States, the United Kingdom and Poland for gross proceeds of
$17.4 million.

During
the year ended December 31, 2013, net fair value losses totalled $25.2 million and consisted primarily of (i) changes in leasing assumptions and in the amount or timing of
cash flows and (ii) a loss attributed to the Mexican property portfolio partially offset by discount and terminal capitalization rate compression relating to properties in Canada and the
United States. During the third quarter of 2013, Granite entered into a non-binding letter of intent (the "LOI") for the sale to Magna of Granite's portfolio of Mexican properties
currently leased to Magna for a purchase price of U.S. $105.0 million. This information, together with management's reassessment of the Mexican real estate market for industrial
properties using current market data and assumptions, resulted in the recording of a fair value loss.

On
March 5, 2014, Granite entered into an asset purchase agreement with Magna for the sale to Magna of Granite's portfolio of Mexican properties for a purchase price of
U.S. $105.0 million. The sale is subject to the satisfaction of several closing conditions, some of which involve action by government entities in Mexico. The Mexican portfolio
represents approximately 2.4 million square feet and annualized lease payments of $14.0 million at December 31, 2013.

Granite REIT  2013 5

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Income-Producing Properties

At December 31, 2013, Granite had over 100 income-producing properties representing approximately 32.0 million square feet of rentable space. The
portfolio also includes some office buildings that comprise 1% of the total square footage of the income-producing properties.

The
fair value of the income-producing portfolio by country as at December 31, 2013 and December 31, 2012 was as follows:

|                |  | December 31, 2013 |         | December 31, 2012 |    
|--------------- |  | ----------------- | ------- | ----------------- | ---
|
|Canada          |  | $                 | 701.1   |                   | 30 
|Austria         |  |                   | 674.6   |                   | 29 
|U.S.            |  |                   | 425.2   |                   | 18 
|Germany         |  |                   | 276.2   |                   | 12 
|Mexico          |  |                   | 111.7   |                   | 5  
|Netherlands     |  |                   | 101.5   |                   | 4  
|Other countries |  |                   | 35.3    |                   | 2  
|                |  |                   |         |                   |    
|                |  | $                 | 2,325.6 |                   | 100
|                |  |                   |         |                   |    

Fair
values were 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. In accordance with its policy, the Trust measures its income-producing properties and properties under development using valuations prepared by management.
The Trust does not measure its investment properties based on valuations prepared by external appraisers but considers the results of such appraisals in arriving at its own conclusions on values. The
key valuation metrics for Granite's investment properties are summarized in note 5 to the audited combined financial statements for the year ended December 31, 2013.

On
January 2, 2014, the Trust sold an income-producing property located in Germany for gross proceeds of approximately $10.6 million. On February 28, 2014, the Trust sold a
0.1 million square foot income-producing property located in the United States for gross proceeds of approximately $9.8 million to the tenant who began leasing the property
in the fourth quarter of 2013.

At
December 31, 2013, Granite had six active improvement projects primarily for roof and pavement replacements and one expansion project at its income-producing properties. The total estimated
cost of these projects is approximately $10.3 million of which, as at December 31, 2013, $2.1 million had been spent with the remaining cost of the projects expected to be funded
during 2014 from cash from operations.

Properties and Land Under Development

At December 31, 2013, the Trust had one property under development: a 35.9 acre land site located at Settlers Point Business Park in Shepherdsville, Kentucky
(see "SIGNIFICANT MATTERS  Acquisitions") that is being developed into a 0.6 million
square foot multipurpose facility with an estimated cost of construction of approximately $21.9 million, of which $10.0 million had been spent at December 31, 2013. The
development is expected to be completed in the second quarter of 2014. On July 25, 2013, the Trust entered into a construction loan for U.S. $17.0 million relating to this project
(see"LIQUIDITY AND CAPITAL RESOURCES  Bank and Debentures Financing"). As at December 31, 2013,
$3.3 million has been drawn under this construction loan.

Land Held For Development

In April 2013, Granite acquired an 89.2 acre site located in Bethel Township, Pennsylvania (see "SIGNIFICANT
MATTERS  Acquisitions") which is being held for future development.

6 Granite REIT  2013

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LEASING PROFILE

Magna, Our Largest Tenant

At December 31, 2013, Magna is the tenant at 82 (2012  89) of Granite's income-producing properties comprising 85%
(2012  97%) of Granite's annualized lease payments. Magna is a diversified global automotive supplier that designs, develops and manufactures technologically
advanced automotive systems, assemblies, modules and components, and engineers and assembles complete vehicles, primarily for sale to original equipment manufacturers of cars and light trucks. Magna's
product capabilities span a number of major automotive areas, including interior systems, seating systems, closure systems, body and chassis systems, vision systems, electronic systems, exterior
systems, powertrain systems, roof systems, hybrid electric vehicles/systems and complete vehicle engineering and assembly.

Granite's
relationship with Magna is an arm's length landlord and tenant relationship governed by the terms of Granite's leases with Magna. The terms of the lease arrangements with Magna generally
provide for the following:

Renewal
terms, rates and conditions are typically set out in our leases with Magna and form the basis for tenancies that continue beyond the expiries of the initial lease terms.

According
to its public disclosure, Magna's success is primarily dependent upon the levels of car and light truck production by Magna's customers, the relative amount of content Magna has in the
various
programs and its operating costs in the various countries in which it operates. Granite management expects Magna to continuously seek to optimize its global manufacturing footprint and consequently,
Magna may not renew leases for facilities currently under lease at their expiries.

Annualized Lease Payments(1)

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Annualized
lease payments represent Granite's total annual rent assuming the contractual lease payments as at the last day of the reporting period were in place for an entire year or less than a year
if non-renewal or termination notices have been provided. Accordingly, any revenue changes from future contractual rent adjustments, renewal and re-leasing activities or expansion and improvement
projects to be completed are not reflected in annualized lease payments as at December 31, 2013. In addition, rents denominated in foreign currencies are converted to Cdn. dollars based on
exchange rates in effect at the last day of the reporting

Granite REIT  2013 7

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|                                                     |  | Three Months Ended
December 31, 2013 |       | Year Ended
December 31, 2013 |  
|---------------------------------------------------- |  | ------------------------------------ | ----- | ---------------------------- | -
|Annualized lease payments, beginning of period       |  | $                                    | 199.6 |                              | $
|Acquisitions                                         |  |                                      | 16.9  |                              |  
|Contractual rent adjustments                         |  |                                      | 0.5   |                              |  
|Completed projects on-stream                         |  |                                      |      |                              |  
|Re-leasing                                           |  |                                      | 2.8   |                              |  
|Vacancies                                            |  |                                      | (2.4  | )                            |  
|Renewals                                             |  |                                      | (1.7  | )                            |  
|Disposals                                            |  |                                      | (0.2  | )                            |  
|Effect of changes in foreign currency exchange rates |  |                                      | 6.4   |                              |  
|                                                     |  |                                      |       |                              |  
|Annualized lease payments, as at December 31, 2013   |  | $                                    | 221.9 |                              | $
|                                                     |  |                                      |       |                              |  

During
the fourth quarter of 2013, annualized lease payments increased by $22.3 million from $199.6 million at September 30, 2013 to $221.9 million at December 31,
2013. The acquisition of the eight income-producing properties in Europe increased annualized lease payments by $16.9 million (see "SIGNIFICANT
MATTERS  Acquisitions"). Contractual rent adjustments increased annualized lease payments by $0.5 million including
$0.3 million from fixed contractual adjustments on properties representing 0.6 million square feet of leaseable area in Canada and the United States and $0.2 million
from Consumer Price Index ("CPI") based increases on properties representing 6.0 million square feet of leaseable area in Germany, Austria and the Czech Republic. The commencement of
three new leases to non-Magna tenants for 0.8 million square feet of previously vacated leaseable area in Germany, Canada and the United States increased annualized lease payments
by $2.8 million. The strengthening of the euro and U.S. dollar against the Canadian dollar resulted in increases in annualized lease payments of $4.6 million and
$1.8 million, respectively.

These
increases were partially offset by a $2.4 million decrease related to vacancies; $1.3 million of which reflects the impact of the expected disposal of a 0.2 million
square foot property in Germany and $1.1 million due to the non-renewal of three expired leases for properties in the United States, Germany and Austria which have a combined
0.9 million square feet of leaseable area (see "LEASING PROFILE  Leasing Activity").
Annualized lease payments were also negatively impacted by a net $1.7 million due to the renewal of five leases representing 2.2 million square feet of leasable area in North
America and Europe at market rates which were lower than the expiring lease rates in place and by $0.2 million due to the disposal of a property in Poland.

On
a year to date basis, annualized lease payments increased by $36.7 million from $185.2 million at December 31, 2012 to $221.9 million at December 31, 2013.
Acquisitions increased annualized lease payments by $23.4 million which includes $16.9 million related to the acquired European portfolio of properties noted above and
$6.5 million related to the acquisition of four income-producing properties in the United States (see "SIGNIFICANT
MATTERS  Acquisitions"). Contractual rent adjustments increased annualized payments by $7.2 million including CPI based increases
totaling $6.3 million on properties representing 17.0 million square feet of leaseable area in North America and Europe and $0.9 million from fixed contractual adjustments
on properties representing 2.3 million of leaseable area in Canada, the United States and Mexico. Annualized lease payments were also positively impacted by $2.4 million due to
the completion of expansion and improvement projects in Germany, Canada, the Czech Republic and the United States, which added 0.4 million square feet of leaseable area and by
$2.8 million due to the commencement of the three new leases of previously vacated space as noted above. Movements in foreign exchange rates resulted in an increase in annualized lease payments
of $12.8 million as a result of increases of $9.4 million and $3.4 million due to the strengthening of the euro and U.S. dollar against the Cdn. dollar, respectively.

8 Granite REIT  2013

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These
increases in annualized lease payments were partially offset by a decrease of $8.5 million related to vacancies, which includes $7.2 million due to the non-renewal of eight leases
for 1.3 million square feet of leaseable area in Germany, Austria, Canada and the United States (see "LEASING
PROFILE  Leasing Activity") and $1.3 million which reflects the impact of the previously noted disposal in Germany. Renewals
negatively impacted annualized lease payments by a net $3.2 million due to the renewal of 10 leases representing 3.0 million square feet of leaseable area in North America
and Europe at market rates which were lower than the expiring lease rates in place. As noted above, annualized lease payments for the year ended December 31, 2013 were also negatively impacted
by $0.2 million due to the disposal of a property in Poland.

The
annualized lease payments by currency at December 31, 2013 and December 31, 2012 were as follows:

|            |  | December 31,
2013 |       | December 31,
2012 |    
|----------- |  | ----------------- | ----- | ----------------- | ---
|Euro        |  | $                 | 100.9 |                   | 45 
|Cdn. dollar |  |                   | 64.0  |                   | 29 
|U.S. dollar |  |                   | 55.9  |                   | 25 
|Other       |  |                   | 1.1   |                   | 1  
|            |  |                   |       |                   |    
|            |  | $                 | 221.9 |                   | 100
|            |  |                   |       |                   |    

Leasing Activity

2013 Lease Expiries

For the 2013 fiscal year, there were 28 leases expiring including two leases associated with properties acquired during the year. These lease expiries represent
5.1 million square feet of leaseable area. Eighteen of the expiring leases, representing 2.8 million square feet and annual lease payments of $12.9 million at
December 31, 2013 were renewed. Six of the properties with a total square footage of 1.1 million square feet of leaseable area were vacated, subsequently however, three of
these properties, representing 0.9 million square feet, were re-leased to new tenants during the year and one property, representing 0.1 million square feet, was sold in
the fourth quarter of 2013. In addition, a property representing an aggregate of 0.5 million square feet in Germany was partially disposed of in January 2014 and the remainder
will be vacated in mid-2014. Lease renewal negotiations are in progress for the remaining three properties, representing 0.7 million square feet, which continue to be occupied by the
respective tenants.

Other Lease Extensions and Renewals

During the year ended December 31, 2013, the lease expiry on a property leased to Magna in Germany was extended from August 28, 2018 to April 30, 2023 in
conjunction with an expansion project undertaken to bring the total leaseable area to 0.3 million square feet. In addition, a lease on a property leased to Magna in Austria was extended
from December 31, 2017 to December 31, 2022 in conjunction with an upcoming expansion project which will bring the total leaseable area to approximately 0.8 million
square feet. On January 30, 2014, a subsidiary of Magna International Inc. agreed to a lease extension at its Thondorf facility in Graz, Austria. The lease expiry for the
approximately 3.85 million square foot facility has been extended from December 31, 2017 to January 31, 2024. In connection with the extension, the current rental rate will
remain fixed for the balance of the term and Granite will pay a one-time tenant allowance in the amount of euro 25.0 million. In addition, a binding LOI to lease has been signed with
respect to a vacant property in Canada representing 0.2 million square feet. The tenant will occupy the property once renovations are complete which is expected to be in the third
quarter of 2014.

Granite REIT  2013 9

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Lease Expiration

As at December 31, 2013, Granite's portfolio had a weighted average lease term by square footage of 4.8 years with lease expiries by square footage
(in thousands) and related annualized lease payments (in millions) set out in the table below:

|            |  |        |  | Vacant |  | 2014  |  | 2015 |  | 2016  |  | 2017 |  | 2018  |  | 2019 |  | 2020 and Beyond
|----------- |  | ------ |  | ------ |  | ----- |  | ---- |  | ----- |  | ---- |  | ----- |  | ---- |  | ---------------
|
|Canada      |  | 7,826  |  | 253    |  | 705   |  | 3.4  |  | 631   |  | 5.1  |  | 368   |  | 3.4  |  | 3,583          
|U.S.        |  | 7,146  |  | 407    |  | 482   |  | 1.8  |  | 316   |  | 1.2  |  | 365   |  | 1.2  |  | 643            
|Mexico      |  | 2,404  |  | 143    |  |      |  |     |  | 68    |  | 0.3  |  |      |  |     |  | 1,097          
|Austria     |  | 8,085  |  | 88     |  |      |  |     |  | 81    |  | 0.8  |  | 299   |  | 1.9  |  | 4,957          
|Germany     |  | 4,601  |  | 62     |  | 941   |  | 2.5  |  |      |  |     |  | 965   |  | 3.6  |  |               
|Netherlands |  | 1,441  |  |       |  |      |  |     |  | 314   |  | 2.1  |  |      |  |     |  |               
|Other       |  | 419    |  |       |  | 75    |  | 0.7  |  |      |  |     |  |      |  |     |  |               
|            |  |        |  |        |  |       |  |      |  |       |  |      |  |       |  |      |  |                
|Total       |  | 31,922 |  | 953    |  | 2,203 |  | 8.4  |  | 1,410 |  | 9.5  |  | 1,997 |  | 10.1 |  | 10,280         
|            |  |        |  |        |  |       |  |      |  |       |  |      |  |       |  |      |  |                

Leasing Costs and Lease Incentives

Direct leasing costs include broker commissions incurred in negotiating and arranging tenant leases. Lease incentives include the cost of leasehold improvements to tenant
spaces or cash allowances provided to tenants for leasehold improvement costs. For the three month period and year ended December 31, 2013, the Trust incurred leasing costs and lease incentives
of $1.6 million and $2.2 million, respectively.

RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED DECEMBER 31, 2013

Highlights

|                                                                                                                                                     |  | Three Months Ended December 31, |      
|---------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------- | -----
|
|Statements of Income                                                                                                                                 |  |                                 |      
|Rental revenue and tenant recoveries                                                                                                                 |  | $                               | 54.7 
|Property operating costs                                                                                                                             |  |                                 | 1.7  
|General and administrative                                                                                                                           |  |                                 | 8.2  
|Depreciation and amortization                                                                                                                        |  |                                 | 0.1  
|Interest expense and other financing costs, net                                                                                                      |  |                                 | 6.7  
|Foreign exchange losses (gains), net                                                                                                                 |  |                                 | 0.2  
|                                                                                                                                                     |  |                                 |      
|Income before fair value changes, acquisition transaction costs, gain on Meadows holdback, loss on sale of investment properties and income taxes(i) |  |                                 | 37.8 
|Fair value losses on investments properties, net                                                                                                     |  |                                 | (29.8
|Fair value gains (losses) on financial instruments                                                                                                   |  |                                 | 0.2  
|Acquisition transaction costs                                                                                                                        |  |                                 | (7.7 
|Loss on sale of investment properties                                                                                                                |  |                                 | (0.8 
|                                                                                                                                                     |  |                                 |      
|Loss before income taxes                                                                                                                             |  |                                 | (0.3 
|Income tax expense (recovery)                                                                                                                        |  |                                 | 2.1  
|                                                                                                                                                     |  |                                 |      
|Net income (loss)                                                                                                                                    |  | $                               | (2.4 
|                                                                                                                                                     |  |                                 |      
|Funds from Operations ("FFO")(ii)                                                                                                                    |  |                                 | 36.5 
|Diluted FFO per stapled unit or share(ii)                                                                                                            |  | $                               | 0.78 
|                                                                                                                                                     |  |                                 |      

NM  not meaningful
N/A  not applicable

10 Granite REIT  2013

---



|
|

|                                                                   |  | Three Months Ended December 31, |       
|------------------------------------------------------------------ |  | ------------------------------- | ------
|
|Cash Flows                                                         |  |                                 |       
|Net income (loss)                                                  |  | $                               | (2.4  
|Items not involving current cash flows                             |  |                                 | 30.3  
|Current income tax expense                                         |  |                                 | 2.5   
|Income taxes paid                                                  |  |                                 | (0.4  
|Interest expense                                                   |  |                                 | 6.5   
|Interest paid                                                      |  |                                 | (7.6  
|Change in working capital balances                                 |  |                                 | (0.8  
|                                                                   |  |                                 |       
|Cash provided by operating activities                              |  | $                               | 28.1  
|                                                                   |  |                                 |       
|Acquisitions                                                       |  | $                               | (179.8
|Real estate properties and fixed asset additions                   |  |                                 | (6.4  
|Cash provided by other investing activities                        |  |                                 | 6.6   
|                                                                   |  |                                 |       
|Cash used in investing activities                                  |  | $                               | (179.6
|                                                                   |  |                                 |       
|Distributions or dividends paid                                    |  | $                               | (24.6 
|Net proceeds from the issuance of debentures and bank indebtedness |  |                                 | 190.2 
|Cash used in other financing activities                            |  |                                 | (1.5  
|                                                                   |  |                                 |       
|Cash provided by (used in) financing activities                    |  | $                               | 164.1 
|                                                                   |  |                                 |       

NM  not meaningful
N/A  not applicable

Rental Revenue and Tenant Recoveries

Rental revenue for the three month period ended December 31, 2013 increased $9.4 million to $54.7 million from $45.3 million in the prior year
period. The change in rental revenue is discussed below:

|Rental revenue, three months ended December 31, 2012         |  | $ | 45.3 |  
|------------------------------------------------------------ |  | - | ---- | -
|Contractual rent adjustments                                 |  |   | 1.9  |  
|Completed projects on-stream                                 |  |   | 0.7  |  
|Acquisitions                                                 |  |   | 5.1  |  
|Renewals and re-leasing of income-producing properties       |  |   | (0.6 | )
|Vacancies of income-producing properties                     |  |   | (0.5 | )
|Effect of changes in foreign currency exchange rates         |  |   | 2.7  |  
|Other, including straight-line adjustments to rental revenue |  |   | 0.1  |  
|                                                             |  |   |     
|Rental revenue, three months ended December 31, 2013         |  | $ | 54.7 |  
|                                                             |  |   |     

The
$1.9 million increase in revenue from contractual rent adjustments includes (i) $0.4 million from annual CPI based increases implemented in 2013 on properties representing
7.5 million square feet of leaseable area, (ii) $1.3 million from cumulative CPI based increases (being increases that occur every five years or once a specified cumulative
increase in CPI has occurred) implemented in 2012 and 2013 on properties representing 10.6 million square feet of leaseable area, and (iii) $0.2 million from fixed contract
adjustments on properties representing 1.8 million square feet of leaseable area.

Granite REIT  2013 11

---



Completed projects on-stream contributed $0.7 million to rental revenue for the three month period ended December 31, 2013 primarily from the completion of five Magna expansion or
improvement projects in Germany, the Czech Republic, Canada and the United States in 2012 and 2013, which added a combined 0.3 million square feet of leaseable area and the
completion of an improvement project for a non-Magna tenant in Canada in 2013.

The
acquisition of 12 income-producing properties in 2013, representing 4.2 million square feet of leaseable area, contributed $5.1 million to rental revenue for the three
month period ended December 31, 2013 (see "SIGNIFICANT MATTERS  Acquisitions").

Renewals
and re-leasing had a net $0.6 million negative impact on revenues compared to the prior year period. This decrease was primarily due to the renewal of four leases representing
2.5 million square feet of leaseable area in Germany and Austria, which were negotiated at rental rates lower than the expiring lease rates in place.

Rental
revenue for the three month period ended December 31, 2013 was also negatively impacted by $0.5 million due to vacancies resulting from the non-renewal of five expired leases with
Magna representing 0.6 million square feet of leaseable area in the United States.

Foreign
exchange had a $2.7 million positive impact on reported rental revenue as the weakening of the Cdn. dollar against the euro and U.S. dollar denominated rents resulted in an
increase in rental revenue of $2.1 million and $0.6 million, respectively.

Property Operating Costs

Property operating costs, which include real estate taxes, utilities, insurance, repairs and maintenance, legal and other property-related expenses, were $1.7 million
for the three month period ended December 31, 2013 in comparison to $2.4 million in the prior year period. Property costs in the prior year
period include $1.6 million in land transfer taxes and related costs incurred with respect to internal reorganizations related to the REIT conversion. Excluding the impact related to the land
transfer tax and related costs, property costs increased by $0.9 million due to (i) $0.3 million in property costs recoverable from tenants, which are attributable to properties
acquired during 2013, (ii) $0.3 million of professional fees related to lease renewals and re-leasing of properties and (iii) $0.3 million in property related costs
associated with the acquired properties in the Netherlands as these costs are not directly recoverable from the tenant but rather are factored into the base rental charge. These increases were
partially offset by a $0.2 million decrease in appraisal, environmental and valuation costs associated with our income-producing properties. In 2012, as part of the process of preparing for the
REIT conversion, the Trust undertook to appraise and fair value all properties.

General and Administrative Expenses

General and administrative expenses for the three month periods ended December 31, 2013 and 2012 were $8.2 million and $10.4 million respectively. The
$2.2 million decrease is primarily due to a $3.7 million decrease in advisory costs associated with the REIT conversion and related internal reorganizations, partially offset by
$0.7 million in higher compensation expense and increased professional fees of $0.5 million.

Depreciation and Amortization

Depreciation and amortization expense is related to the amortization of fixed assets relating to our offices in Toronto, Canada and Vienna, Austria.

Interest Expense and Other Financing Costs, Net

Net interest expense and other financing costs were $6.7 million in the three month period ended December 31, 2013 compared to $4.1 million in the prior
year period. The increase of $2.6 million is primarily related to $1.9 million of interest and associated costs related to the issuance of the 2018 Debentures
(see "SIGNIFICANT MATTERS  Series 1 Senior Debentures") and $0.6 million of additional
interest costs

12 Granite REIT  2013

---



related
to outstanding mortgage debts and draws on the revolving credit facility with respect to the acquisitions that occurred in 2013.

Foreign Exchange Losses (Gains), Net

Granite recognized net foreign exchange losses of $0.2 million in the three month period ended December 31, 2013 compared to net foreign exchange losses of less
than $0.1 million in the prior year period. The net foreign exchange losses in the fourth quarter of 2013 primarily consist of net realized losses of $0.8 million on derivative financial
instruments such as foreign exchange contracts (see note 19 to the audited combined financial statements for the year ended December 31, 2013) partially offset by foreign
exchange gains of $0.6 million on certain assets and liabilities denominated in U.S. dollar and euro balances. The net foreign exchange losses in the three month period ended
December 31, 2012, are primarily due to $0.3 million of net foreign exchange losses on the re-measurement of certain assets and liabilities of Granite and its subsidiaries that are
denominated in U.S. dollars and euros offset by a $0.3 million net realized gain on derivative financial instruments such as foreign exchange forward contracts.

Fair Value Losses on Investment Properties, Net

Net fair value losses on investment properties were $29.8 million and $41.6 million in the three month periods ended December 31, 2013 and 2012,
respectively. The net fair value losses in the fourth quarter of 2013 virtually all relate to the Canadian and Austrian portfolios. The declines are primarily attributable to changes in leasing
assumptions such as reductions in market rent values used in the discounted cash flow models with the balance relating to the amount or timing of cash flows primarily resulting from capital
expenditure projects. There were no significant changes in discount and termination capitalization rates in any of our operating jurisdictions in the fourth quarter of 2013.

The
fair value losses in the fourth quarter of 2012 relate primarily to the changes in leasing assumptions such as reductions in market rent values used in the discounted cash flow models and the
increase in discount and terminal capitalization rates relating to our properties located in Austria and Germany.

Fair Value Gains (Losses) on Financial Instruments

Granite recognized net fair value gains on financial instruments of $0.2 million in the three month period ended December 31, 2013 compared to net fair value
losses of $0.6 million in the prior year period. Net fair value gains for the fourth quarter of 2013 are primarily related to $0.2 million of fair value gains recognized with respect to
foreign exchange forward contracts outstanding at the beginning of the period. For the three month period ended December 31, 2012, the net fair value losses were related primarily to foreign
exchange forward contracts outstanding at the end of the period (see note 19 to the audited combined financial statements for the year ended December 31, 2013).

Acquisition Transaction Costs

In the fourth quarter of 2013, Granite incurred $7.7 million in acquisition transaction costs. These costs included $6.7 million of land transfer taxes and
$1.0 million of legal and administrative costs related to the acquisitions of the European properties that were completed in the fourth quarter of 2013
(see "SIGNIFICANT MATTERS  Acquisitions").

Loss on Sale of Investment Properties

During the three month period ended December 31, 2013, the Trust disposed of an income-producing property located in Poland and two vacant properties located in the
United States and the United Kingdom for combined gross proceeds of $6.8 million, and incurred a $0.3 million loss on disposal due to the associated selling costs. In the
fourth quarter of 2013, the Trust also incurred $0.5 million in costs related to the sale of an investment property in Germany, which closed in January 2014 and the potential sale of its
portfolio of Mexican properties.

Granite REIT  2013 13

---



Income Tax Expense (Recovery)

The income tax expense for the fourth quarter of 2013 was $2.1 million. This includes (i) a net current tax expense of $1.3 million which relates to
foreign operations; and (ii) the recording of $1.2 million of reserves for certain income tax positions taken, partially offset by (i) a deferred tax recovery of
$0.4 million that relates to the net changes in the fair values of investment properties, foreign operations, the impact of income tax rate changes and the movement of foreign exchange.

The
combined current and deferred effective income tax rate for the fourth quarter of 2013 reflects a $2.1 million provision on a pre-tax loss of $0.3 million which is largely driven by
no deferred tax recovery being recorded on the fair value losses attributable to the Canadian properties and the proportion of income attributable to foreign taxable jurisdictions. This compares with
an effective income tax rate in the fourth quarter of 2012 of a recovery of $28.4 million on a pre-tax loss of $13.9 million largely driven by the deferred tax recovery recorded in
Canada of approximately $22.9 million related to a REIT reorganization step taken in that quarter. Also, relative to 2012 when Granite was a corporation, the effective tax rate for the three
months ended December 31, 2013 is favourably impacted due to the REIT conversion, which results in a significantly lower income tax expense in Canada and marginal state current income tax being
recorded in the United States.

The
Trust is structured with the objective of optimizing after-tax distributions it receives from its various subsidiary entities. Income tax related legislative changes, including withholding taxes,
may affect the level of distributions made to the Trust by its subsidiary entities, the level of taxable income earned by the Trust and the source of income distributed by the Trust.

Net Income (Loss)

Net loss was $2.4 million in the three month period ended December 31, 2013 in comparison to net income of $14.5 million in the prior year period. The
decrease in net income of $16.9 million was primarily due to a decrease in deferred tax recovery of $34.2 million and $7.7 million in acquisition transaction costs, partially
offset by an $11.8 million decrease in the fair value loss on investment properties, a $9.4 million increase in rental revenue and a $3.7 million decrease in current
tax expense.

Funds From Operations

|                                                                             |                                                    | Three Months Ended December 31, |       
|---------------------------------------------------------------------------- | -------------------------------------------------- | ------------------------------- | ------
|
|Net income (loss) attributable to stapled unitholders or common shareholders |                                                    | $                               | (2,599
|Add (deduct):                                                                |                                                    |                                 |       
|                                                                             | Fair value losses on investment properties         |                                 |       
|                                                                             | Fair value losses (gains) on financial instruments |                                 |       
|                                                                             | Acquisition transaction costs                      |                                 |       
|                                                                             | Loss on sale of investment properties              |                                 |       
|                                                                             | Deferred income taxes                              |                                 |       
|                                                                             | Non-controlling interests relating to the above    |                                 |       
|                                                                             |                                                    |                                 |       
|Funds from Operations ("FFO")                                                |                                                    | $                               | 36,470
|                                                                             |                                                    |                                 |       
|Basic and diluted FFO per stapled unit or share                              |                                                    | $                               | 0.78  
|                                                                             |                                                    |                                 |       
|Basic number of stapled units or common shares outstanding                   |                                                    |                                 | 46,942
|                                                                             |                                                    |                                 |       
|Diluted number of stapled units or common shares outstanding                 |                                                    |                                 | 46,957
|                                                                             |                                                    |                                 |       

Granite
determines FFO using the definition prescribed by the Real Estate Property Association of Canada ("REALPAC"). Granite considers FFO to be a meaningful supplemental measure of operating
performance. However, FFO should not be construed as an alternative to net income or cash flows provided by operating

14 Granite REIT  2013

---



activities
determined in accordance with IFRS. FFO and basic and diluted FFO per stapled unit or share are measures widely used by analysts and investors in evaluating the operating performance of
real estate entities. However, FFO does not have a standardized meaning under IFRS and therefore may not be comparable to similar measures presented by other entities.

The
$14.4 million increase in FFO compared to the prior year period is primarily due to increased rental revenue of $9.4 million and lower current tax expense of $3.7 million.

RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2013

Highlights

|                                                                                                                                                     |  | Years Ended December 31, |      
|---------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------ | -----
|
|Rental revenue and tenant recoveries                                                                                                                 |  | $                        | 203.2
|Income before fair value changes, acquisition transaction costs, gain on Meadows holdback, loss on sale of investment properties and income taxes(i) |  |                          | 149.3
|Net income attributable to stapled unitholders or common shareholders                                                                                |  |                          | 145.0
|Funds from Operations ("FFO")(ii)                                                                                                                    |  |                          | 138.3
|Comparable FFO(iii)                                                                                                                                  |  |                          | 142.5
|Diluted FFO per stapled unit or share(ii)                                                                                                            |  | $                        | 2.95 
|Diluted comparable FFO per stapled unit or share(iii)                                                                                                |  | $                        | 3.04 

|
|

|(in millions, except number of properties) |  | December 31,
2013 |         | December 31,
2012 |   | Change 
|------------------------------------------ |  | ----------------- | ------- | ----------------- | - | -------
|Number of income-producing properties      |  |                   | 112     |                   |   | 104    
|Leaseable area (sq. ft.)                   |  |                   | 31.9    |                   |   | 28.0   
|Annualized lease payments ("ALP")          |  | $                 | 221.9   |                   | $ | 185.2  
|Investment properties, fair value          |  | $                 | 2,351.9 |                   | $ | 1,943.7

Rental Revenue and Tenant Recoveries

Rental revenue for the year ended December 31, 2013 increased $22.1 million to $203.2 million from $181.1 million in the prior year period. The
change in rental revenue is discussed below:

|Rental revenue, year ended December 31, 2012                 |  | $ | 181.1 |  
|------------------------------------------------------------ |  | - | ----- | -
|Contractual rent adjustments                                 |  |   | 6.6   |  
|Completed projects on-stream                                 |  |   | 3.0   |  
|Acquisitions                                                 |  |   | 8.6   |  
|Renewals and re-leasing of income-producing properties       |  |   | (1.3  | )
|Vacancies and disposals of income-producing properties       |  |   | (1.3  | )
|Effect of changes in foreign currency exchange rates         |  |   | 6.2   |  
|Other, including straight-line adjustments to rental revenue |  |   | 0.3   |  
|                                                             |  |   |      
|Rental revenue, year ended December 31, 2013                 |  | $ | 203.2 |  
|                                                             |  |   |      

Granite REIT  2013 15

---



The
$6.6 million increase in revenue from contractual rent adjustments includes (i) $1.7 million from annual CPI based increases implemented in 2013 on properties representing
7.5 million square feet of leaseable area, (ii) $4.4 million from cumulative CPI based increases (being increases that occur every five years or once a specified cumulative
increase in CPI has occurred) implemented in 2012 and 2013 on properties representing 11.3 million square feet of leaseable area, and (iii) $0.5 million from fixed contract
adjustments on properties representing 2.3 million square feet of leaseable area.

The
completion of eight Magna expansion or improvement projects in Austria, Germany, the Czech Republic, Canada and the United States in 2012 and 2013, and one non-Magna improvement project in
Canada, which added a combined 0.6 million square feet of leaseable area, contributed $3.0 million to rental revenue for the year ended December 31, 2013.

The
acquisition of 12 income-producing properties in 2013, representing 4.2 million square feet of leaseable area, contributed $8.6 million to rental revenue for the year
ended December 31, 2013 (see "SIGNIFICANT MATTERS  Acquisitions").

Renewals
and re-leasing had a $1.3 million net negative impact on revenues compared to the prior year period. This decrease was primarily due to the renewal of nine leases representing
3.5 million square feet of leaseable area in Canada, the United States, Mexico, Germany and Austria, which were negotiated at rental rates lower than the expiring lease rates
in place.

Rental
revenue for the year ended December 31, 2013 was also negatively impacted by $1.3 million primarily due to a non-Magna tenant vacating a 0.3 million square foot
facility in the United Kingdom and vacancies resulting from the non-renewal by Magna of five expired leases representing 0.6 million square feet of leaseable area in the
United States.

Foreign
exchange had a $6.2 million positive impact on reported rental revenues as the weakening of the Cdn. dollar against the euro and U.S. dollar denominated rents resulted in an
increase in rental revenue of $4.8 million and $1.4 million, respectively.

Property Operating Costs

Property operating costs, which include real estate taxes, utilities, insurance, repairs and maintenance, legal and other property-related expenses were $5.6 million for
both of the years ended December 31, 2013 and 2012. As previously noted, property costs for the prior year period include $1.6 million of land
transfer taxes and other related costs associated with internal reorganizations related to the REIT conversion. Excluding the impact of these costs, property costs increased by $1.6 million
primarily due to (i) $1.1 million in property costs recoverable from tenants, which are attributable to three of the properties acquired during 2013, (ii) $0.7 million of
professional fees related to lease renewals and re-leasing of properties and (iii) $0.7 million related to higher repairs and maintenance costs and realty taxes incurred with respect to
vacant and acquired properties in the Netherlands. These increases were partially offset by a $1.0 million decrease in appraisal, environmental and valuation costs compared to the prior year
period. In 2012, as part of the process of preparing for the REIT conversion, the Trust undertook to appraise and fair value all properties.

General and Administrative Expenses

General and administrative expenses decreased by $3.7 million to $27.3 million in the year ended December 31, 2013 from $31.0 million in the prior
year period. General and administrative expenses for the year ended December 31, 2013 include $2.5 million of advisory costs relating to the REIT conversion and related internal
reorganizations. General and administrative expenses for the year ended December 31, 2012 include $7.9 million of advisory costs related to the REIT conversion and $0.3 million of
employee termination expense. Excluding the impact of the advisory costs and the employee termination expense, general and administrative expenses increased by $2.0 million primarily due to
higher compensation expense and professional fees.

16 Granite REIT  2013

---



Depreciation and Amortization

Depreciation and amortization expense increased by $0.2 million and resulted from the amortization of fixed assets relating to our offices in Toronto, Canada and Vienna,
Austria.

Interest Expense and Other Financing Costs, Net

Net interest expense and other financing costs were $20.6 million in the year ended December 31, 2013 compared to $15.9 million in the prior year period.
The increase of $4.7 million is comprised of the previously noted $1.9 million of interest and associated costs related to the issuance of the 2018 Debentures
(see "SIGNIFICANT MATTERS  Series 1 Senior Debentures"), $1.9 million of additional interest
costs related to the outstanding mortgage debts and draws on the revolving credit facility with respect to the acquisitions that occurred in 2013, $0.2 million in amortization of deferred
financing costs related to a credit facility which was replaced in February 2013, a $0.4 million decrease in capitalized interest due to fewer capital projects in 2013 and a
$0.2 million decrease in interest income.

Foreign Exchange Losses (Gains), Net

Granite recognized net foreign exchange losses of less than $0.1 million in the year ended December 31, 2013 compared to net foreign exchange gains of
$0.2 million in the prior year period. Net foreign exchange losses for the year ended December 31, 2013 included a $1.2 million realized foreign exchange loss on derivative
financial instruments such as foreign exchange forward contracts, offset by $1.2 million in net foreign exchange gains primarily related to the weakening of the Cdn. dollar on the
re-measurement of certain assets and liabilities of Granite and its subsidiaries that are denominated in U.S. dollars and euros. The net foreign exchange gains in the year ended
December 31, 2012 are primarily due to a $0.9 million net realized gain on derivative financial instruments such as foreign exchange forward contracts, partially offset by
$0.7 million of net foreign exchange losses on the re-measurement of certain assets and liabilities of Granite and its subsidiaries that are denominated in U.S. dollars and euros.

Fair Value Losses (Gains) on Investment Properties, Net

Net fair value losses on investment properties were $25.2 million in the year ended December 31, 2013 compared to net fair value gains on investment properties of
$33.3 million in the prior year period. The net fair value losses in the year ended December 31, 2013 primarily resulted from (i) changes in leasing assumptions relating to market
rent values used in the discounted cash flow models, recent lease renewals and the amount or timing of cash flows primarily attributable to capital expenditures and (ii) a net fair value
loss attributed to the Mexican portfolio (see "INVESTMENT PROPERTIES") partially offset with discount and terminal capitalization rate
compression in Canada and the United States.

The
fair value gains in the year ended December 31, 2012 primarily resulted from the compression in discount and terminal capitalization rates across the entire portfolio with the most
significant gains occuring in Canada and Europe. The fair value of investment properties at January 1, 2012 and December 31, 2012 represent a weighted average terminal capitalization
rate (defined as terminal capitalization rate weighted on investment property fair value) of 8.87% and 8.66%, respectively, and a weighted average discount rate (defined as discount rate weighted on
investment property fair value) of 8.91% and 8.70%, respectively.

Fair Value Gains (Losses) on Financial Instruments

Granite recognized net fair value gains on financial instruments of $0.1 million in the year ended December 31, 2013 compared to fair value losses of
$0.4 million in the prior year period. Net fair value gains for the year ended December 31, 2013 related to the increase in fair value of the interest rate caps associated with the
mortgages payable. Net fair value losses for the year ended December 31, 2012 were related to foreign exchange forward contracts outstanding at the end of the period (see note 19
to the audited combined financial statements for the year ended December 31, 2013).

Granite REIT  2013 17

---



Acquisition Transaction Costs

In the year ended December 31, 2013, Granite incurred $14.2 million in acquisition transaction costs. These costs included $12.1 million of land transfer
taxes and $2.1 million for legal and other administrative costs related to the acquisitions made in Europe and the United States that were all accounted for as business combinations
(see "SIGNIFICANT MATTERS  Acquisitions").

Gain on Meadows Holdback

In the first quarter of 2013, the Trust entered into a settlement agreement pursuant to which the Trust has received U.S. $5.0 million relating to a holdback
receivable of a former subsidiary's sale of a property in 2006. The settlement proceeds comprised a cash payment of U.S. $1.5 million and a non-interest bearing promissory note of
U.S. $3.5 million payable in U.S. $0.5 million monthly instalments which commenced March 31, 2013 and concluded with the final installment received in
October 2013.

Loss on Sale of Investment Properties

In 2013, the Trust disposed of an income-producing property located in Poland and three vacant properties located in Canada, the United States and the
United Kingdom for combined gross proceeds of $17.4 million, and incurred a $0.6 million loss on disposal due to the associated selling costs. The Trust also incurred
$0.5 million in costs related to the sale of an investment property in Germany, which closed in January 2014 and the potential sale of its portfolio of Mexican properties.

Income Tax Expense (Recovery)

The net income tax recovery for the year ended December 31, 2013 was $31.3 million and primarily comprised of (i) a reversal of $41.9 million of the
Canadian deferred tax liabilities recorded prior to the January 3, 2013 REIT conversion; and (ii) a net $0.2 million recovery of other items including the change in previously
unrecognized tax benefits, the settlement of tax examinations in Canada, Germany and the United States which were recorded in the first and third quarters of 2013 and the recording of reserves
for certain income tax positions taken in the fourth quarter. These recoveries were partially offset by
(i) $3.2 million of net deferred tax expense related to the net changes in the fair values of investment properties, foreign operations, the impact of income tax rate changes, and the
movement of foreign exchange; and (ii) $6.5 million of current tax expense related to foreign operations.

Significantly
impacting the current tax expense and deferred tax recovery was a $4.2 million net withholding tax payment made in the second quarter primarily related to a large repatriation of
tax paid earnings of prior years from foreign operations that was offset by the reversal of the deferred tax expense recorded in prior periods resulting in no impact to total tax expense for the year
ended December 31, 2013. A repatriation of tax paid earnings from foreign operations of this magnitude is not expected to recur.

Excluding
the deferred tax reversals of $41.9 million noted above and $22.9 million in the fourth quarter of 2012, the combined current and deferred income tax expense for the years
ended December 31, 2013 and 2012 was $10.6 million, representing an effective tax rate of 9% and $34.6 million, representing an effective tax rate of 21%, respectively. The
effective tax rate is lower for the year ended December 31, 2013 primarily due to the REIT conversion, which results in a significantly lower income tax expense in Canada and only some state
current income tax being recorded in the United States.

As
previously noted, the Trust is structured with the objective of optimizing after-tax distributions it receives from its various subsidiary entities. Income tax related legislative changes,
including withholding taxes, may affect the level of distributions made to the Trust by its subsidiary entities, the level of taxable income earned by the Trust and the source of income distributed by
the Trust.

Net Income

Net income was $145.3 million in the year ended December 31, 2013 in comparison to $149.8 million in the prior year period. The decrease of
$4.5 million was primarily due to the net fair value losses on investment properties of $25.2 million compared to a $33.3 million net fair value gain in the prior year period,
$14.2 million

18 Granite REIT  2013

---



in
acquisition transaction costs, $4.7 million in additional net interest expense and a $1.1 million loss on sale of investment properties, partially offset by a decrease in deferred
income taxes of $34.9 million which includes the reversal of $41.9 million in Canadian deferred income tax liabilities as a result of converting to a REIT on January 3, 2013, a
$22.1 million increase in rental revenue, a $8.2 million decrease in current income taxes, a $5.1 million gain on the settlement of the Meadows holdback and a $3.7 million
decrease in general and administrative expenses.

Funds From Operations

|                                                                      |                                                    | Years Ended December 31, |        
|--------------------------------------------------------------------- | -------------------------------------------------- | ------------------------ | -------
|
|Net income attributable to stapled unitholders or common shareholders |                                                    | $                        | 145,031
|Add (deduct):                                                         |                                                    |                          |        
|                                                                      | Fair value losses (gains) on investment properties |                          |        
|                                                                      | Fair value losses (gains) on financial instruments |                          |        
|                                                                      | Gain on Meadows holdback                           |                          |        
|                                                                      | Acquisition transaction costs                      |                          |        
|                                                                      | Loss on sale of investment properties              |                          |        
|                                                                      | Deferred income taxes                              |                          |        
|                                                                      | Non-controlling interests relating to the above    |                          |        
|                                                                      |                                                    |                          |        
|Funds from Operations ("FFO")                                         |                                                    | $                        | 138,285
|                                                                      |                                                    |                          |        
|Net withholding tax payment                                           |                                                    |                          | 4,220  
|                                                                      |                                                    |                          |        
|Comparable FFO                                                        |                                                    | $                        | 142,505
|                                                                      |                                                    |                          |        
|Basic and diluted FFO per stapled unit or share                       |                                                    | $                        | 2.95   
|                                                                      |                                                    |                          |        
|Basic and diluted comparable FFO per stapled unit or share            |                                                    | $                        | 3.04   
|                                                                      |                                                    |                          |        
|Basic number of stapled units or common shares outstanding            |                                                    |                          | 46,925 
|                                                                      |                                                    |                          |        
|Diluted number of stapled units or common shares outstanding          |                                                    |                          | 46,949 
|                                                                      |                                                    |                          |        

NM  not meaningful
N/A  not applicable

As noted earlier in this MD&A, Granite determines FFO using the definition prescribed by REALPAC
(see  "RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED DECEMBER 31, 2013  Funds
from Operations").

Comparable
FFO for the year ended December 31, 2013 excludes $4.2 million of current tax expense associated with net withholding taxes paid in the second quarter of 2013 largely related
to the repatriation of prior years' earnings from foreign jurisdictions primarily associated with certain planned internal reorganizations undertaken post REIT conversion. These withholding taxes were
accounted for as a deferred tax expense in prior years, the vast majority of which pertain to periods prior to 2012, and therefore the impact to the current tax expense was offset by the reversal of
the prior year deferred tax accrual resulting in no impact to total tax expense. As the net $4.2 million withholding tax payment is a result of a significant repatriation that is not expected
to recur at a similar level of magnitude, it has been added to FFO to arrive at a comparable FFO amount to prior periods. Comparable FFO increased $32.6 million compared to the prior year
period primarily due to increased rental revenue of $22.1 million, a reduction in general and administrative expense of $3.7 million and lower current income tax expense of
$12.2 million partially offset by a $4.7 million increase in net interest expense.

Granite REIT  2013 19

---



LIQUIDITY AND CAPITAL RESOURCES

Granite generated cash flows from operations of $28.1 million and $127.9 million in the three month period and year ended December 31,
2013, respectively. At December 31, 2013, the Trust had cash and cash equivalents of $95.5 million and unitholders' equity of $1.7 billion.

Cash Flows

Three Months Ended December 31, 2013

Operating Activities

|                                                                |  | Three Months Ended December 31, |     
|--------------------------------------------------------------- |  | ------------------------------- | ----
|
|Cash Flows                                                      |  |                                 |     
|Net income (loss)                                               |  | $                               | (2.4
|Items not involving current cash flows                          |  |                                 | 30.3
|Current income tax expense                                      |  |                                 | 2.5 
|Income taxes paid                                               |  |                                 | (0.4
|Interest expense                                                |  |                                 | 6.5 
|Interest paid                                                   |  |                                 | (7.6
|                                                                |  |                                 |     
|Cash from operations before changes in working capital balances |  |                                 | 28.9
|Change in working capital balances                              |  |                                 | (0.8
|                                                                |  |                                 |     
|Cash provided by operating activities                           |  | $                               | 28.1
|                                                                |  |                                 |     

Cash
generated from operations before changes in working capital balances increased $8.2 million to $28.9 million in the fourth quarter of 2013 compared to $20.7 million in the
prior year period. The increase is primarily due to increased rental revenue of $9.4 million and lower income taxes paid of $5.7 million partially offset by $7.7 million in
acquisition transaction costs.

The
change in working capital balances resulted in a use of cash of $0.8 million in the fourth quarter of 2013. The change in working capital for the three month period ended
December 31, 2013 comprised a decrease in accounts payable and other accrued liabilities of $1.6 million, primarily due to the payment of acquisition costs partially offset by a
$0.8 million decrease in accounts receivable primarily due to the receipt of VAT receivable related to a completed expansion project in Germany.

In
the fourth quarter of 2012, the change in working capital balances generated cash of $3.6 million primarily due to a $2.6 million increase in accounts payable and other accrued
liabilities primarily related
to professional fee accruals relating to the REIT conversion and a $2.0 million increase in deferred revenue due to timing of rental receipts partially offset by a $1.2 million increase
in accounts receivable primarily due to funds receivable from a non-Magna tenant with respect to a capital project.

Investing Activities

Investing activities for the three month period ended December 31, 2013 used cash of $179.6 million, which was primarily a result of $179.8 million of cash
payments related to acquisitions and investment property additions of $6.1 million partially offset by net proceeds of $6.6 million on the disposal of investment properties. Cash used in
investing activities for the fourth quarter of 2012 of $4.9 million was primarily due to investment property additions of $7.2 million and fixed asset additions of $0.2 million,
partially offset by proceeds from an unsecured note receivable of $2.5 million.

Financing Activities

Cash generated by financing activities for the three month period ended December 31, 2013 of $164.1 million was primarily related to $200.0 million of
proceeds received from the issuance of the 2018 Debentures partially offset by distribution payments of $24.6 million, repayment of bank indebtedness of $9.8 million and
$1.7 million of financing costs paid with respect to the 2018 Debentures. Cash used in financing activities for the three month period ended December 31, 2012 related to dividend
payments of $23.4 million.

20 Granite REIT  2013

---



Year Ended December 31, 2013

Operating Activities

|                                                                |  | Years Ended December 31, |      
|--------------------------------------------------------------- |  | ------------------------ | -----
|
|Cash Flows                                                      |  |                          |      
|Net income                                                      |  | $                        | 145.3
|Items not involving current cash flows                          |  |                          | (16.5
|Current income tax expense                                      |  |                          | 10.5 
|Income taxes paid                                               |  |                          | (14.5
|Interest expense                                                |  |                          | 19.9 
|Interest paid                                                   |  |                          | (17.1
|                                                                |  |                          |      
|Cash from operations before changes in working capital balances |  |                          | 127.6
|Change in working capital balances                              |  |                          | 0.3  
|                                                                |  |                          |      
|Cash provided by operating activities                           |  | $                        | 127.9
|                                                                |  |                          |      

For
the year ended December 31, 2013, Granite generated cash from operations before changes in working capital balances of $127.6 million compared to $105.3 million in the prior
year period. The $22.3 million increase is primarily due to the increase in rental revenue of $22.1 million, lower income taxes paid of $14.1 million and a $3.7 million
decrease in general and administrative expenses partially offset by $14.2 million of acquisition transaction costs.

The
change in working capital balances generated cash of $0.3 million in the year ended December 31, 2013. The main drivers of the change in working capital for the period were a
$1.3 million decrease in accounts receivable primarily due to the collection of a receivable related to a completed capital project for a non-Magna tenant partially offset by a
$1.1 million decrease in deferred revenue due to timing of rental receipts.

For
the year ended December 31, 2012, the change in working capital balances generated cash of $10.7 million primarily due to a $6.4 million increase in accounts payable and other
accrued liabilities, primarily related to professional fee accruals related to the REIT conversion and higher incentive pay accruals due to the introduction of an incentive plan in 2012, a
$2.9 million decrease in accounts receivable primarily due to lower rent, process related costs and VAT receivables, partially offset by the capital project cost receivable noted above, and a
$2.0 million increase in deferred revenue due to timing of rental receipts. These increases were partially offset by a $0.5 million transfer of funds to restricted cash with respect to a
construction project.

Investing Activities

Cash used in investing activities for the year ended December 31, 2013 was $253.6 million, which was primarily a result of $247.6 million of cash payments
related to acquisitions, investment property additions of $28.9 million and fixed asset additions of $0.7 million partially offset by net proceeds from the disposal of income-producing
properties of $16.8 million, proceeds from the Meadows holdback of $5.3 million and $2.6 million in proceeds from an unsecured note receivable. Cash used in investing activities
for the year ended December 31, 2012 of $25.3 million was primarily due to investment property additions of $29.8 million and fixed asset additions of $1.8 million,
partially offset by proceeds from an unsecured note receivable of $5.0 million and net proceeds of $1.2 million from the disposition of an income-producing property.

Financing Activities

For the year ended December 31, 2013, cash generated by financing activities of $162.1 million was primarily related to $200.0 million of proceeds received
on the issuance of the 2018 Debentures, $50.4 million of net borrowings from bank indebtedness, $3.1 million received upon the exercise of stock options and $1.9 million

Granite REIT  2013 21

---



received
from non-controlling interests, partially offset by distribution payments of $90.3 million and $2.8 million of financing costs paid. For the year ended December 31, 2012,
net cash outflows from financing activities were $96.0 million, which included $93.8 million of dividend payments, $2.7 million related to the repurchase of common shares and
$0.4 million in financing costs paid, partially offset by $1.0 million in proceeds received on the issuance of shares from the exercise of stock options.

Bank and Debenture Financing

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

In
December 2004, Granite issued $265.0 million of 6.05% senior unsecured debentures (the "2016 Debentures"), which are due December 22, 2016, at a price of $995.70 per
$1,000.00 of principal amount and are guaranteed by Granite and certain of its subsidiaries. The 2016 Debentures rank equally with all of Granite's existing and future unsecured indebtedness. The
total outstanding at December 31, 2013 was $263.9 million.

In
October 2013, Granite issued at par $200.0 million of the 2018 Debentures which are due October 2, 2018 (see "SIGNIFICANT
MATTERS  Series 1 Senior Debentures"). The 2018 Debentures rank equally with all of the Trust's existing and future unsubordinated
and unsecured indebtedness and are guaranteed by Granite and certain of its subsidiaries. The total outstanding at December 31, 2013 was $198.1 million. At December 31, 2013, all
of the 2016 Debentures and the 2018 Debentures remained outstanding.

Also
in October 2013, the Trust entered into a cross currency interest rate swap (the "Cross Currency Interest Rate Swap") to exchange the $200.0 million proceeds and related
4.613% interest payments from the 2018 Debentures to euro 142.3 million and euro denominated interest payments at a 3.56% interest rate. Under the terms of the swap, on October 2,
2018, the Trust will repay the principal proceeds received of euro 142.3 million for $200.0 million. As at December 31, 2013, the fair value of the Cross Currency Interest
Rate Swap was a net financial liability of $11.0 million.

In
connection with the acquisitions of income-producing properties that were completed in February and May 2013, the Trust has two mortgages outstanding totaling $38.8 million
(U.S. $36.5 million). The mortgages mature on June 10, 2017 and May 10, 2018, respectively and both bear interest at LIBOR plus 2.5%. Interest rate caps were entered into
for 100% of the mortgage amounts and for the duration of the mortgages thereby limiting the exposure to interest rate fluctuations to a maximum of 4.0%. The mortgages are recourse to the three
investment properties acquired which are pledged as collateral.

In
July 2013, the Trust entered into a construction loan (the "Construction Loan") for U.S. $17.0 million relating to the development land purchased in the
United States (see "INVESTMENT PROPERTIES"). The Construction Loan bears interest at LIBOR plus 2.25% and matures on July 25, 2016.
Proceeds from the Construction Loan may only be used to pay for the construction cost of improvements on the property and other related costs, and loan advances will be made based on the value of the
work completed. The maximum amount available under the Construction Loan may be increased to U.S. $19.0 million, subject to certain terms and conditions being met. The Trust has the
option to extend the maturity date for two successive periods to July 25, 2017 and 2018, subject to certain terms and conditions. The Construction Loan is secured by a first mortgage lien on
the property. At December 31, 2013, $3.3 million (U.S. $3.1 million) had been drawn under the Construction Loan.

22 Granite REIT  2013

---



At
December 31, 2013, the Trust's debt to total equity ratio was 25%. Management believes that the Trust's cash resources, cash flow from operations and available third-party borrowings will be
sufficient to
finance its operations and capital expenditures program over the next year as well as pay distributions. Additional acquisition and development activity will depend on the availability of suitable
investment opportunities and related financing.

At
December 31, 2013, the Trust was in compliance with its debt agreements and related covenants.

Credit Ratings

On October 30, 2013, Moody's assigned a rating to the 2016 Debentures, 2018 Debentures as well as the Trust of Baa3 with a positive outlook. On October 1,
2013, DBRS confirmed the BBB rating on the 2016 Debentures and 2018 Debentures with a stable trend. Credit ratings are intended to provide investors with an independent measure of credit quality of an
issue of securities. A rating accorded to any security is not a recommendation to buy, sell or hold such securities and may be subject to revision or withdrawal at any time by the rating organization
which granted such ratings.

Distributions

As required by National Policy 41-201,Income Trusts and Other Indirect Offerings, the following table outlines the
differences between cash flow from operating activities and cash distributions as well as the differences between net income (loss) and cash distributions, in accordance with the guidelines.

|(in thousands)                                                           |  | Three Months Ended
December 31, 2013 |         | Year Ended
December 31, 2013 |  
|------------------------------------------------------------------------ |  | ------------------------------------ | ------- | ---------------------------- | -
|Net income (loss)                                                        |  | $                                    | (2,391  | )                            | $
|                                                                         |  |                                      |         |                              |  
|Cash flows from operating activities                                     |  | $                                    | 28,069  |                              | $
|Distributions paid and payable                                           |  |                                      | (25,021 | )                            |  
|                                                                         |  |                                      |         |                              |  
|Cash flows from operating activities over distributions paid and payable |  | $                                    | 3,048   |                              | $
|                                                                         |  |                                      |         |                              |  

Distributions
declared to stapled unitholders in the three month period ended December 31, 2013 were $25.0 million or 53 cents per stapled unit. Total distributions declared to
stapled unitholders in the year ended December 31, 2013 were $98.9 million or $2.11 per stapled unit. Distributions to stapled unitholders were funded from cash from operations.

Net
income (loss) prepared in accordance with IFRS recognizes revenue and expenses at time intervals that do not necessarily match the receipt or payment of cash. Therefore, when establishing cash
distributions to unitholders, consideration is given to factors such as cash generated from and required for operating activities and forward-looking cash flow information, including forecasts and
budgets. Management does not expect current or potential commitments to replace and maintain its investment properties to adversely affect distributions.

CONTROLS AND PROCEDURES

---

Disclosure Controls and Procedures

The Chief Executive Officer and the Chief Financial Officer of Granite have evaluated the effectiveness of the Trust's disclosure controls and procedures, as defined in
National Instrument 52-109 Certification of Disclosure in Issuers' Annual and Interim Filings("NI 52-109"), as of the end of the period covered by the annual filings (as defined in NI 52-109) (the "Evaluation Date"). They have concluded that, as of the Evaluation
Date, the Trust's disclosure controls and procedures were effective to ensure that material information relating to Granite and its subsidiaries would be made known to them by others within those
entities and would be disclosed on a timely basis. However, as recommended by Canadian and United States securities regulators, the Trust will continue to periodically evaluate its disclosure
controls and procedures and will make modifications from time to time as deemed necessary to ensure that information is recorded, processed, summarized and reported within the time periods specified
in the applicable rules.

Granite REIT  2013 23

---



Management's Report on Internal Control Over Financial Reporting

The Trust's management is responsible for establishing and maintaining internal control over financial reporting (as such term is defined in NI 52-109 and
Rules 13a-15(f) and 15d-15(f) under the United States Securities Exchange Act of 1934) for the Trust. Under the supervision and with the participation of Granite's Chief Executive
Officer and Chief Financial Officer, management conducted an evaluation of the effectiveness of Granite's internal control over financial reporting, as of the Evaluation Date, based on the framework
set forth inInternal Control-Integrated Framework (1992)issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on its
evaluation under this framework, management concluded that Granite's internal control over financial reporting was effective as of December 31, 2013.

Deloitte LLP,
an independent registered public accounting firm, who audited the Trust's combined financial statements as at and for the year ended December 31, 2013 and whose report is
included in the Trust's annual report for fiscal 2013, has also issued an attestation report under standards of the Public Company Accounting Oversight Board (United States) on Granite's
internal control over financial reporting as of December 31, 2013. The attestation report precedes the financial statements included in the Trust's annual report for fiscal 2013.

Changes in Internal Control Over Financial Reporting

As of the Evaluation Date, there have been no changes in the Trust's internal control over financial reporting that occurred during the period beginning on the date immediately
following the end of the period in respect of which Granite made its most recent previous interim filing and ended on December 31, 2013 that have materially affected, or are reasonably likely
to materially affect, the Trust's internal control over financial reporting.

Limitation on the Effectiveness of Controls and Procedures

Granite's management, including the Chief Executive Officer and the Chief Financial Officer, does not expect that the Trust's controls and procedures will prevent all potential
error and fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met.

COMMITMENTS, CONTRACTUAL OBLIGATIONS, CONTINGENCIES AND OFF-BALANCE SHEET ARRANGEMENTS

---

In the ordinary course of business activities, the Trust may become subject to litigation and other claims brought by, among others, tenants, suppliers and
former employees. Management believes that adequate provisions have been recorded in the accounts where required. Although it is not possible to accurately estimate the extent of potential costs and
losses, if any, management believes, but can provide no assurance, that the ultimate resolution of such claims would not have a material adverse effect on the financial position of the Trust.

24 Granite REIT  2013

---



The
Trust has made commitments for future payments of interest and principal on long-term debt, construction and development project costs and certain other costs. At December 31, 2013, future
payments, including interest payments, under these contractual obligations were as follows:

|                                                 |                                                                |   |         | Payments due by year
|------------------------------------------------ | -------------------------------------------------------------- | - | ------- | --------------------
|
|
|Unsecured debentures                             |                                                                | $ | 465,000 |                     
|Cross Currency Interest Rate Swap                |                                                                |   | 11,003  |                     
|Secured long-term debt                           |                                                                |   | 42,065  |                     
|Bank indebtedness                                |                                                                |   | 53,180  |                     
|Interest expense:                                |                                                                |   |         |                     
|                                                 | Unsecured debentures, net of Cross Currency Interest Rate Swap |   |         | 83,726              
|                                                 | Secured long-term debt                                         |   |         | 3,554               
|                                                 | Bank indebtedness                                              |   |         | 1,037               
|Operating leases                                 |                                                                |   | 2,024   |                     
|Contingent consideration                         |                                                                |   | 3,777   |                     
|Construction and development project commitments |                                                                |   | 8,204   |                     
|                                                 |                                                                |   |         |                     
|                                                 |                                                                | $ | 673,570 |                     
|                                                 |                                                                |   |         |                     

In addition, the Trust is committed to making annual payments under two ground leases for the land upon which two income-producing properties are
situated of $0.1 million and $0.5 million to the years 2049 and 2096, respectively.

Off-balance
sheet arrangements consist of letters of credit, construction and development project commitments and certain operating agreements.

For
further discussion of commitments, contractual obligations, contingencies and off-balance sheet arrangements, refer to notes 8, 9, 10 and 23 to the audited combined financial
statements and "LIQUIDITY AND CAPITAL RESOURCES".

RELATED PARTY TRANSACTIONS

---

For a discussion of the Trust's transactions with related parties, please refer to note 21 to the audited combined financial statements for the year
ended December 31, 2013.

OUTSTANDING STAPLED UNITS

---

As at the date of this MD&A, the Trust had 46,944,792 stapled units issued and outstanding. The decrease from the issued and outstanding stapled units of
46,944,821 at December 31, 2013 results from the redemption of 29 stapled units in February 2014.

DISTRIBUTIONS

---

Granite REIT's monthly distribution to unitholders is currently 18.3 cents per stapled unit, representing, on an annualized basis, $2.20 per stapled
unit. Total distributions declared in the year ended December 31, 2013 were $98.9 million. In January and February 2014, Granite REIT declared monthly distributions of
18.3 cents per stapled unit, or $8.6 million, with respect to the one month periods ended January 31, 2014 and February 28, 2014, respectively. The distribution declared in
January 2014 was paid on February 14, 2014 and the distribution declared in February 2014 will be paid on March 14, 2014.

Granite REIT  2013 25

---



TRANSITION TO IFRS  KEY CHANGES

---

Granite has adopted IFRS effective January 1, 2012, the transition date, and has prepared its opening IFRS balance sheet as at that date. Prior to the
adoption of IFRS, the Trust prepared its financial statements in accordance with U.S. GAAP. The nature of the adjustments is described below:

As
at January 1, 2012, unitholders' equity increased primarily from the fair value increase in investment properties partially offset by the corresponding deferred tax adjustment. In preparing
the combined financial statements in accordance with IFRS 1, First-time Adoption of International Financial Reporting Standards, the Trust has applied the mandatory exception from full
retrospective application under IFRS relating to estimates. Hindsight was not used to create or revise estimates and accordingly the estimates previously made by the Trust under U.S. GAAP are
consistent with their application under IFRS.

CRITICAL ACCOUNTING ESTIMATES

---

The preparation of combined financial statements in conformity with IFRS requires management to apply judgment and make estimates that affect the amounts
reported and disclosed in the combined financial statements. Management bases estimates on historical experience and various other assumptions that are believed to be reasonable in the circumstances,
the results of which form the basis for making judgments

26 Granite REIT  2013

---



about
the values of assets and liabilities. On an ongoing basis, management evaluates its estimates. However, actual results could differ from those estimates under different assumptions
or conditions.

The
Trust's significant accounting policies that involve the most judgment and estimate are as follows:

Judgments

Leases

The Trust's policy for revenue recognition is described in note 2(j) of the audited combined financial statements for the year ended December 31, 2013. The Trust
makes judgments in determining whether certain leases are operating or finance leases, in particular tenant leases with long contractual terms or leases where the property is a large square-footage
and/or architecturally unique and ground leases where the Trust is the lessee.

Investment properties

The Trust's policy relating to investment properties is described in note 2(d) of the audited combined financial statements for the year ended December 31, 2013.
In applying this policy, judgment is applied in determining whether certain costs incurred for tenant improvements are additions to the carrying amount of the property or represent incentives,
identifying the point at which practical completion of properties under development occurs and determining borrowing costs to be capitalized to the carrying value of
properties under development. Judgment is also applied in determining the extent and frequency of independent appraisals.

Income taxes

The Trust applies judgment in determining whether it will continue to qualify as a REIT for both Canadian and U.S. tax purposes for the foreseeable future. However,
should it, at some point no longer qualify, it would be subject to income tax and would be required to recognize current and deferred income taxes.

Estimates and Assumptions

Valuation of investment properties

The fair value of investment properties is determined by management using primarily the discounted cash flow method in which the income and expenses are projected over the
anticipated term of the investment plus a terminal value discounted using an appropriate discount rate. Management also takes into consideration appraisals obtained from time to time from independent
qualified real estate valuation experts in order to arrive at its own conclusions on value. The Trust's critical assumptions relating to the estimates of fair values of investment properties include
the receipt of contractual rents, contractual renewal terms, expected future market rental rates, discount rates that reflect current market uncertainties, capitalization rates and recent property
investment prices. If there is any change in these assumptions or regional, national or international economic conditions, the fair value of investment properties may change materially. Refer to
note 5 of the audited combined financial statements for the year ended December 31, 2013 for further information on the estimates and assumptions made by management in connection with
the fair values of investment properties.

Fair value of financial instruments

Where the fair value of financial assets or liabilities recorded on the balance sheet or disclosed in the notes cannot be derived from active markets, they are determined using
valuation techniques including the discounted cash flow model. The inputs to these models are taken from observable markets where possible, but where this is not feasible, a degree of judgment is
required in establishing fair values. The judgments include considerations of inputs such as credit risk and volatility. Changes in assumptions about these factors could materially affect the reported
fair value of financial instruments.

Granite REIT  2013 27

---



Income taxes

The Trust operates in a number of countries and is subject to the income tax laws in its operating jurisdictions. These laws can be subject to different interpretations by
relevant taxation authorities. Significant judgment is required in the estimation of Granite's income tax expense, interpretation and application of the relevant tax laws, and provision for any
exposure that may arise from tax positions that are under audit by relevant taxation authorities.

The
recognition and measurement of deferred tax assets or liabilities is dependent on management's estimate of future taxable profits and income tax rates that are expected to be in effect in the
period the asset is realized or the liability is settled. Any changes in management's estimate can result in changes in deferred tax assets or liabilities as reported in the audited combined balance
sheets and also the deferred income tax expense in the audited combined statements of income.

NEW ACCOUNTING PRONOUNCEMENTS AND DEVELOPMENTS

---

New accounting standards issued but not yet applicable to the combined financial statements for the year ended December 31, 2013 are described below.
Granite intends to adopt these standards when they become effective.

Financial Instruments: Presentation IAS 32

There are a number of amendments to IAS 32 Financial Instruments: Presentation ("IAS 32"), relating to offsetting certain assets and liabilities. These amendments
are to the application guidance in IAS 32 and clarify some of the requirements for offsetting financial assets and financial liabilities on the balance sheet. The amendments are effective
January 1, 2014. The Trust does not expect the adoption of these amendments to have a significant impact on the combined financial statements.

Levies

In May 2013, IFRIC Interpretation 21  Levies ("IFRIC 21") was issued which is an interpretation of
IAS 37  Provisions, Contingent Liabilities and Contingent Assets. IFRIC 21 clarifies what the obligating event is that gives rise to a levy and
when a liability should be recognized. IFRIC 21 is effective for years beginning on or after January 1, 2014 and must be applied retrospectively. Realty taxes payable by the Trust are
considered levies and the Trust is currently assessing the potential impact of this standard on its combined financial statements.

Financial Instruments IFRS 9

IFRS 9 Financial Instruments ("IFRS 9") will eventually replace IAS 39 Financial Instruments: Recognition and Measurement ("IAS 39") in its
entirety. IFRS 9 addresses the classification, measurement and recognition of financial assets and financial liabilities. IFRS 9 requires financial assets to be classified into two
measurement categories: those measured at fair value and those measured at amortized cost. The determination is made at initial recognition. The classification depends on the entity's business model
for managing its financial instruments and the contractual cash flow characteristics of the instrument. For financial liabilities, the standard retains most of the IAS 39 requirements. The most
significant change is, in cases where the fair value option is taken for financial liabilities, that the part of a fair value change due to an entity's own credit risk is recorded in other
comprehensive income rather than the income statement. The effective date for implementation of this standard has not been determined. The Trust has not yet determined the impact of IFRS 9 on
its audited combined financial statements.

RISKS AND UNCERTAINTIES

---

Investing in our stapled units involves a high degree of risk. There are a number of risk factors that could have a material adverse effect on our business,
financial condition, operating results and prospects. These risks and uncertainties are discussed in our AIF filed with securities regulators in Canada and available online at
www.sedar.com and Annual Report on Form 40-F filed with the SEC and available online at www.sec.gov, each in respect of the year ended
December 31, 2013.

28 Granite REIT  2013

---



SELECTED ANNUAL AND QUARTERLY DATA

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Refer to note 1 of the audited combined financial statements for a description of the accounting policies used in the determination of the
financial data.

|(in thousands, except for per unit/share information)Years ended December 31,                                          |  | 2013 |           | 2012(1) |   | 2011(2)   |  
|---------------------------------------------------------------------------------------------------------------------- |  | ---- | --------- | ------- | - | --------- | -
|Rental revenue and tenant recoveries                                                                                   |  | $    | 203,247   |         | $ | 181,115   |  
|                                                                                                                       |  |      |           |         |   |           |  
|Net income:                                                                                                            |  |      |           |         |   |           |  
|Continuing operations                                                                                                  |  | $    | 145,266   |         | $ | 149,827   |  
|Discontinued operations                                                                                                |  |      |          |         |   |          |  
|                                                                                                                       |  |      |           |         |   |           |  
|                                                                                                                       |  | $    | 145,266   |         | $ | 149,827   |  
|                                                                                                                       |  |      |           |         |   |           |  
|Income from continuing operations attributable to stapled unitholders or common shareholders                           |  | $    | 145,031   |         | $ | 149,756   |  
|Add (deduct):                                                                                                          |  |      |           |         |   |           |  
|Fair value losses (gains) on investment properties                                                                     |  |      | 25,224    |         |   | (33,343   | )
|Fair value losses (gains) on financial instruments                                                                     |  |      | (72       | )       |   | 359       |  
|Gain on Meadows holdback                                                                                               |  |      | (5,143    | )       |   |          |  
|Acquisition transaction costs                                                                                          |  |      | 14,246    |         |   |          |  
|Loss (gain) on sale of investment properties/real estate properties                                                    |  |      | 1,122     |         |   | 21        |  
|Deferred income taxes                                                                                                  |  |      | (42,018   | )       |   | (6,923    | )
|Non-controlling interests relating to the above                                                                        |  |      | (105      | )       |   | (15       | )
|Depreciation and amortization                                                                                          |  |      |          |         |   |          |  
|                                                                                                                       |  |      |           |         |   |           |  
|FFO                                                                                                                    |  | $    | 138,285   |         | $ | 109,855   |  
|                                                                                                                       |  |      |           |         |   |           |  
|Comparable FFO                                                                                                         |  | $    | 142,505   |         | $ | 109,855   |  
|                                                                                                                       |  |      |           |         |   |           |  
|Basic income from continuing operations per unit or share attributable to stapled unitholders or common shareholders   |  | $    | 3.09      |         | $ | 3.20      |  
|                                                                                                                       |  |      |           |         |   |           |  
|Diluted income from continuing operations per unit or share attributable to stapled unitholders or common shareholders |  | $    | 3.09      |         | $ | 3.20      |  
|                                                                                                                       |  |      |           |         |   |           |  
|Basic net income per unit or share attributable to stapled unitholders or common shareholders                          |  | $    | 3.09      |         | $ | 3.20      |  
|                                                                                                                       |  |      |           |         |   |           |  
|Diluted net income per unit or share attributable to stapled unitholders or common shareholders                        |  | $    | 3.09      |         | $ | 3.20      |  
|                                                                                                                       |  |      |           |         |   |           |  
|Diluted FFO per stapled unit or share                                                                                  |  | $    | 2.95      |         | $ | 2.34      |  
|                                                                                                                       |  |      |           |         |   |           |  
|Diluted comparable FFO per stapled unit or share                                                                       |  | $    | 3.04      |         | $ | 2.34      |  
|                                                                                                                       |  |      |           |         |   |           |  
|Cash distributions or dividends declared                                                                               |  | $    | 2.11      |         | $ | 1.99      |  
|                                                                                                                       |  |      |           |         |   |           |  
|Basic shares outstanding                                                                                               |  |      | 46,925    |         |   | 46,855    |  
|                                                                                                                       |  |      |           |         |   |           |  
|Diluted shares outstanding                                                                                             |  |      | 46,949    |         |   | 46,876    |  
|                                                                                                                       |  |      |           |         |   |           |  
|Total Assets                                                                                                           |  | $    | 2,468,633 |         | $ | 2,007,090 |  
|                                                                                                                       |  |      |           |         |   |           |  
|Total Debt                                                                                                             |  | $    | 568,109   |         | $ | 263,589   |  
|                                                                                                                       |  |      |           |         |   |           |  

Granite REIT  2013 29

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|
|

|Quarter ended                                                                                                       |  | Mar 31,
2013 |         | Jun 30,
2013 |   | Sep 30,
2013 |   | Dec 31,
2013 |        | Total
2013 |  
|------------------------------------------------------------------------------------------------------------------- |  | ------------ | ------- | ------------ | - | ------------ | - | ------------ | ------ | ---------- | -
|Rental revenue and tenant recoveries                                                                                |  | $            | 48,124  |              | $ | 49,476       |   | $            | 50,969 |            | $
|                                                                                                                    |  |              |         |              |   |              |   |              |        |            |  
|Net income (loss)(1)                                                                                                |  | $            | 94,394  |              | $ | 43,394       |   | $            | 9,869  |            | $
|                                                                                                                    |  |              |         |              |   |              |   |              |        |            |  
|Net income (loss) attributable to stapled unitholders or common shareholders                                        |  | $            | 94,291  |              | $ | 43,548       |   | $            | 9,791  |            | $
|Add (deduct):                                                                                                       |  |              |         |              |   |              |   |              |        |            |  
|Fair value losses (gains) on investment properties                                                                  |  |              | (18,734 | )            |   | (10,927      | ) |              | 25,065 |            |  
|Fair value losses (gains) on financial instruments                                                                  |  |              | (495    | )            |   | 643          |   |              | (4     | )          |  
|Gain on Meadows holdback                                                                                            |  |              | (5,143  | )            |   |             |   |              |       |            |  
|Acquisition transaction costs                                                                                       |  |              | 411     |              |   | 382          |   |              | 5,702  |            |  
|Loss on sale of investment properties/real estate properties                                                        |  |              |        |              |   | 328          |   |              |       |            |  
|Deferred income taxes                                                                                               |  |              | (36,378 | )            |   | (2,456       | ) |              | (3,997 | )          |  
|Non-controlling interests relating to the above                                                                     |  |              | 54      |              |   | (260         | ) |              | (6     | )          |  
|                                                                                                                    |  |              |         |              |   |              |   |              |        |            |  
|FFO                                                                                                                 |  | $            | 34,006  |              | $ | 31,258       |   | $            | 36,551 |            | $
|                                                                                                                    |  |              |         |              |   |              |   |              |        |            |  
|Comparable FFO(2)                                                                                                   |  | $            | 34,006  |              | $ | 35,478       |   | $            | 36,551 |            | $
|                                                                                                                    |  |              |         |              |   |              |   |              |        |            |  
|Basic and diluted net income (loss) per unit or share attributable to stapled unitholders or common shareholders(1) |  | $            | 2.01    |              | $ | 0.93         |   | $            | 0.21   |            | $
|                                                                                                                    |  |              |         |              |   |              |   |              |        |            |  
|Diluted FFO per stapled unit or share                                                                               |  | $            | 0.73    |              | $ | 0.67         |   | $            | 0.78   |            | $
|                                                                                                                    |  |              |         |              |   |              |   |              |        |            |  
|Diluted comparable FFO per stapled unit or share(2)                                                                 |  | $            | 0.73    |              | $ | 0.76         |   | $            | 0.78   |            | $
|                                                                                                                    |  |              |         |              |   |              |   |              |        |            |  
|Cash distributions or dividends declared                                                                            |  | $            | 0.52    |              | $ | 0.53         |   | $            | 0.53   |            | $
|                                                                                                                    |  |              |         |              |   |              |   |              |        |            |  
|Basic shares outstanding                                                                                            |  |              | 46,882  |              |   | 46,932       |   |              | 46,942 |            |  
|                                                                                                                    |  |              |         |              |   |              |   |              |        |            |  
|Diluted shares outstanding                                                                                          |  |              | 46,910  |              |   | 46,948       |   |              | 46,948 |            |  
|                                                                                                                    |  |              |         |              |   |              |   |              |        |            |  

30 Granite REIT  2013

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|
|

|Quarter ended                                                                                                |  | Mar 31,
2012(1) |        | Jun 30,
2012(1) |   | Sep 30,
2012(1) |   | Dec 31,
2012(1) |         | Total
2012(1) |  
|------------------------------------------------------------------------------------------------------------ |  | --------------- | ------ | --------------- | - | --------------- | - | --------------- | ------- | ------------- | -
|Rental revenue and tenant recoveries                                                                         |  | $               | 45,660 |                 | $ | 45,455          |   | $               | 44,685  |               | $
|                                                                                                             |  |                 |        |                 |   |                 |   |                 |         |               |  
|Net income(2)                                                                                                |  | $               | 28,259 |                 | $ | 41,243          |   | $               | 65,837  |               | $
|                                                                                                             |  |                 |        |                 |   |                 |   |                 |         |               |  
|Net income attributable to stapled unitholders or common shareholders                                        |  | $               | 28,262 |                 | $ | 41,204          |   | $               | 65,824  |               | $
|Add (deduct):                                                                                                |  |                 |        |                 |   |                 |   |                 |         |               |  
|Fair value losses (gains) on investment properties                                                           |  |                 | (1,556 | )               |   | (22,909         | ) |                 | (50,443 | )             |  
|Fair value losses (gains) on financial instruments                                                           |  |                 | 161    |                 |   | (162            | ) |                 | (225    | )             |  
|Loss on sale of investment properties/real estate properties                                                 |  |                 |       |                 |   |                |   |                 | 21      |               |  
|Deferred income taxes                                                                                        |  |                 | 2,704  |                 |   | 10,954          |   |                 | 13,964  |               |  
|Non-controlling interests relating to the above                                                              |  |                 | (27    | )               |   | 24              |   |                 | (12     | )             |  
|                                                                                                             |  |                 |        |                 |   |                 |   |                 |         |               |  
|FFO                                                                                                          |  | $               | 29,544 |                 | $ | 29,111          |   | $               | 29,129  |               | $
|                                                                                                             |  |                 |        |                 |   |                 |   |                 |         |               |  
|Comparable FFO                                                                                               |  | $               | 29,544 |                 | $ | 29,111          |   | $               | 29,129  |               | $
|                                                                                                             |  |                 |        |                 |   |                 |   |                 |         |               |  
|Basic and diluted net income per unit or share attributable to stapled unitholders or common shareholders(2) |  | $               | 0.60   |                 | $ | 0.88            |   | $               | 1.41    |               | $
|                                                                                                             |  |                 |        |                 |   |                 |   |                 |         |               |  
|Diluted FFO per stapled unit or share                                                                        |  | $               | 0.63   |                 | $ | 0.62            |   | $               | 0.62    |               | $
|                                                                                                             |  |                 |        |                 |   |                 |   |                 |         |               |  
|Diluted comparable FFO per stapled unit or share                                                             |  | $               | 0.63   |                 | $ | 0.62            |   | $               | 0.62    |               | $
|                                                                                                             |  |                 |        |                 |   |                 |   |                 |         |               |  
|Cash distributions or dividends declared                                                                     |  | $               | 0.49   |                 | $ | 0.50            |   | $               | 0.50    |               | $
|                                                                                                             |  |                 |        |                 |   |                 |   |                 |         |               |  
|Basic shares outstanding                                                                                     |  |                 | 46,884 |                 |   | 46,880          |   |                 | 46,824  |               |  
|                                                                                                             |  |                 |        |                 |   |                 |   |                 |         |               |  
|Diluted shares outstanding                                                                                   |  |                 | 46,906 |                 |   | 46,896          |   |                 | 46,846  |               |  
|                                                                                                             |  |                 |        |                 |   |                 |   |                 |         |               |  

FORWARD-LOOKING STATEMENTS

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This MD&A may contain statements that, to the extent they are not recitations of historical fact, constitute "forward-looking statements" or "forward-looking
information" within the meaning of applicable securities legislation, including the United States Securities Act of 1933, as amended and the United States Securities Exchange Act of
1934, as amended, and applicable Canadian securities legislation. Forward-looking statements and forward-looking information may include, among others, statements regarding the Trust's future plans,
goals, strategies, intentions, beliefs, estimates, costs, objectives, capital structure, cost of capital, tenant base, tax consequences, economic performance or expectations, or the assumptions
underlying any of the foregoing. Words such as "may", "would", "could", "will", "likely", "expect", "anticipate", "believe", "intend", "plan", "forecast", "project", "estimate", "seek" and similar
expressions are used to identify forward-looking statements and forward-looking information. Forward-looking statements and forward-looking information should not be read as guarantees of future
events, performance or results and will not necessarily be accurate indications of whether or the times at or by which such future performance

Granite REIT  2013 31

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will
be achieved. Undue reliance should not be placed on such statements. There can be no assurance that the intended developments in Granite's relationships with its tenants, the expansion and
diversification of Granite's real estate portfolio and the expected increases in leverage can be achieved in a timely manner, with the expected impact or at all. Forward-looking statements and
forward-looking information are based on information available at the time and/or management's good faith assumptions and analyses made in light of our perception of historical trends, current
conditions and expected future developments, as well as other factors we believe are appropriate in the circumstances, and are subject to known and unknown risks, uncertainties and other unpredictable
factors, many of which are beyond the Trust's control, that could cause actual events or results to differ materially from such forward-looking statements and forward-looking information. Important
factors that could cause such differences include, but are not limited to, the risk of changes to tax or other laws that may adversely affect Granite Real Estate Investment Trust's mutual fund trust
status under theIncome Tax Act(Canada) or the effective tax rate in other jurisdictions in which Granite operates; economic, market and
competitive conditions and other risks that may adversely affect Granite's ability to achieve desired developments in its relationships with its tenants, expand and diversify its real estate portfolio
and increase its leverage and the risks set forth in the "Risk Factors" section in Granite's Annual Information Form for 2013, filed on SEDAR at www.sedar.com and attached
as Exhibit 1 to the Trust's Annual Report on Form 40-F for the year ended December 31, 2013 filed with the SEC and available online at
www.sec.gov, all of which investors are strongly advised to review. The "Risk Factors" section also contains information about the material factors or assumptions
underlying such forward-looking statements and forward-looking information. Forward-looking statements and forward-looking information speak only as of the date the statements were made and unless
otherwise required by applicable securities laws, the Trust expressly disclaims any intention and undertakes no obligation to update or revise any forward-looking statements and forward-looking
information contained in this MD&A to reflect subsequent information, events or circumstances or otherwise.

32 Granite REIT  2013

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