EX-4.4





 Exhibit 4.4 
  





 
 Condensed Combined Financial Statements 

of Granite Real Estate Investment Trust 
 and Granite
REIT Inc. 
 For the three and six months ended June 30, 2019 and 2018 












 Condensed Combined Balance Sheets 

(Canadian dollars in thousands) 

(Unaudited) 
  

													
	As at	  	Note	 	  	 June 30,

2019
	 	  	 December 31,

2018
	 
	 ASSETS
	  				  				  			
				
	 Non-current assets:
	  				  				  			
	 Investment properties
	  	 	2(c), 4	 	  	$	3,799,046	 	  	$	3,424,978	 
	 Acquisition deposits
	  	 	3	 	  	 	60,121	 	  	 	34,288	 
	 Deferred tax assets
	  				  	 	5,304	 	  	 	5,301	 
	 Fixed assets, net
	  	 	2(c)	 	  	 	2,237	 	  	 	771	 
	 Other assets
	  	 	6	 	  	 	1,454	 	  	 	13,425	 
		  				  	 	3,868,162	 	  	 	3,478,763	 
				
	 Current assets:
	  				  				  			
	 Assets held for sale
	  	 	5	 	  	 	50,461	 	  	 	44,238	 
	 Other receivable
	  	 	7	 	  	 	11,325	 	  	 	—	 
	 Accounts receivable
	  				  	 	3,968	 	  	 	4,316	 
	 Income taxes receivable
	  				  	 	536	 	  	 	212	 
	 Prepaid expenses and other
	  				  	 	2,024	 	  	 	2,510	 
	 Restricted cash
	  				  	 	475	 	  	 	470	 
	 Cash and cash equivalents
	  	 	14(d)	 	  	 	496,862	 	  	 	658,246	 
	 Total assets
	  	 	 	 	  	$	4,433,813	 	  	$	4,188,755	 
				
	 LIABILITIES AND EQUITY
	  				  				  			
				
	 Non-current liabilities:
	  				  				  			
	 Unsecured debt, net
	  	 	8(a)	 	  	$	1,188,599	 	  	$	1,198,414	 
	 Cross currency interest rate swaps
	  	 	8(b)	 	  	 	63,794	 	  	 	104,757	 
	 Long-term portion of lease obligations
	  	 	2(c)	 	  	 	32,767	 	  	 	—	 
	 Deferred tax liabilities
	  	 	 	 	  	 	312,954	 	  	 	303,965	 
		  				  	 	1,598,114	 	  	 	1,607,136	 
				
	 Current liabilities:
	  				  				  			
	 Deferred revenue
	  	 	9	 	  	 	7,111	 	  	 	4,290	 
	 Accounts payable and accrued liabilities
	  	 	9	 	  	 	45,311	 	  	 	41,967	 
	 Distributions payable
	  	 	10	 	  	 	11,520	 	  	 	24,357	 
	 Short-term portion of lease obligations
	  	 	2(c)	 	  	 	431	 	  	 	—	 
	 Income taxes payable
	  	 	 	 	  	 	13,591	 	  	 	14,020	 
	 Total liabilities
	  	 	 	 	  	 	1,676,078	 	  	 	1,691,770	 
				
	 Equity:
	  				  				  			
	 Stapled unitholders’ equity
	  	 	11	 	  	 	2,756,386	 	  	 	2,495,518	 
	 Non-controlling
interests
	  	 	 	 	  	 	1,349	 	  	 	1,467	 
	 Total equity
	  	 	 	 	  	 	2,757,735	 	  	 	2,496,985	 
	 Total liabilities and equity
	  	 	 	 	  	$	4,433,813	 	  	$	4,188,755	 

 Commitments and contingencies (note 17) 

See accompanying notes 

  
 2    Granite REIT 2019 Second
Quarter Report 













 Condensed Combined Statements of Net Income 

(Canadian dollars in thousands) 

(Unaudited) 
  

																					
	  	  	  	 	  	Three Months Ended
June 30,	 	 	Six Months
Ended
June 30,	 
	  	  	Note	 	  	2019(1)	 	 	2018	 	 	2019(1)	 	 	2018	 
	 Rental revenue
	  				  	$	59,595	 	 	$	55,366	 	 	$	115,443	 	 	$	109,251	 
	 Tenant recoveries
	  	 	12(a)	 	  	 	7,719	 	 	 	6,774	 	 	 	15,032	 	 	 	13,548	 
	 Lease termination and
close-out fees
	  	 	 	 	  	 	589	 	 	 	—	 	 	 	855	 	 	 	996	 
	 Revenue
	  				  	 	67,903	 	 	 	62,140	 	 	 	131,330	 	 	 	123,795	 
	 Property operating costs
	  	 	12(b)	 	  	 	8,798	 	 	 	7,430	 	 	 	17,034	 	 	 	15,310	 
	 Net operating income
	  				  	 	59,105	 	 	 	54,710	 	 	 	114,296	 	 	 	108,485	 
						
	 General and administrative expenses
	  	 	12(c)	 	  	 	8,636	 	 	 	7,147	 	 	 	16,510	 	 	 	14,635	 
	 Depreciation and amortization
	  	 	2(c)	 	  	 	219	 	 	 	79	 	 	 	433	 	 	 	158	 
	 Interest income
	  				  	 	(2,735	) 	 	 	(567	) 	 	 	(5,604	) 	 	 	(1,711	) 
	 Interest expense and other financing costs
	  	 	12(d)	 	  	 	7,798	 	 	 	5,449	 	 	 	15,353	 	 	 	10,969	 
	 Foreign exchange losses (gains), net
	  	 	12(e)	 	  	 	296	 	 	 	2,336	 	 	 	766	 	 	 	(9,119	) 
	 Fair value gains on investment properties, net
	  	 	4, 5	 	  	 	(69,580	) 	 	 	(127,918	) 	 	 	(119,650	) 	 	 	(160,228	) 
	 Fair value losses (gains) on financial instruments
	  	 	12(f)	 	  	 	1,655	 	 	 	(1,438	) 	 	 	1,756	 	 	 	530	 
	 Acquisition transaction costs
	  	 	3	 	  	 	—	 	 	 	1,581	 	 	 	—	 	 	 	1,739	 
	 Loss on sale of investment properties
	  	 	5	 	  	 	635	 	 	 	147	 	 	 	1,383	 	 	 	1,234	 
	 Other income
	  	 	12(g)	 	  	 	—	 	 	 	(2,250	) 	 	 	—	 	 	 	(2,250	) 
	 Income before income taxes
	  				  	 	112,181	 	 	 	170,144	 	 	 	203,349	 	 	 	252,528	 
	 Income tax expense
	  	 	13	 	  	 	13,504	 	 	 	20,935	 	 	 	26,344	 	 	 	30,916	 
	 Net income
	  	 	 	 	  	$	98,677	 	 	$	149,209	 	 	$	177,005	 	 	$	221,612	 
						
	 Net income attributable to:
	  				  				 				 				 			
						
	 Stapled unitholders
	  				  	$	98,668	 	 	$	149,167	 	 	$	176,923	 	 	$	221,540	 
	 Non-controlling
interests
	  	 	 	 	  	 	9	 	 	 	42	 	 	 	82	 	 	 	72	 
	 	  	 	 	 	  	$	98,677	 	 	$	149,209	 	 	$	177,005	 	 	$	221,612	 

  

	(1)	 	 The Trust has early adopted the amendments to IFRS 3, Business Combinations, in the three month period ended
June 30, 2019 retrospectively to January 1, 2019 (note 2(c)). 


 See accompanying notes 

  
 Granite REIT 2019 Second Quarter
Report    3 













 Condensed Combined Statements of Comprehensive Income 

(Canadian dollars in thousands) 

(Unaudited) 
  

																					
	  	  	  	 	  	Three Months Ended
June 30,	 	 	Six Months Ended
June 30,	 
	  	  	Note	 	  	2019	 	 	2018	 	 	2019	 	 	2018	 
	 Net income
	  				  	$	98,677	 	 	$	149,209	 	 	$	177,005	 	 	$	221,612	 
						
	 Other comprehensive (loss) income:
	  				  				 				 				 			
	 Foreign currency translation adjustment(1)
	  				  	 	(39,279	) 	 	 	(13,032	) 	 	 	(121,839	) 	 	 	68,689	 
	 Unrealized gain (loss) on net investment hedges, includes income
taxes of nil(1)
	  	 	8(b)	 	  	 	(2,908	) 	 	 	19,179	 	 	 	51,284	 	 	 	(18,357	) 
	 Total other comprehensive (loss) income
	  	 	 	 	  	 	(42,187	) 	 	 	6,147	 	 	 	(70,555	) 	 	 	50,332	 
	 Comprehensive income
	  	 	 	 	  	$	56,490	 	 	$	155,356	 	 	$	106,450	 	 	$	271,944	 
	  
 (1)   Items that may be reclassified subsequently to net income if a foreign subsidiary is disposed of or hedges are terminated or no longer assessed as effective.
	 
     

						
	 Comprehensive income attributable to:
	  				  				 				 				 			
	 Stapled unitholders
	  				  	$	56,471	 	 	$	155,380	 	 	$	106,418	 	 	$	271,871	 
	 Non-controlling
interests
	  	 	 	 	  	 	19	 	 	 	(24	) 	 	 	32	 	 	 	73	 
	 	  	 	 	 	  	$	56,490	 	 	$	155,356	 	 	$	106,450	 	 	$	271,944	 

 See accompanying notes 

  
 4    Granite REIT 2019 Second
Quarter Report 













 Condensed Combined Statements of Unitholders’ Equity 

(Canadian dollars in thousands) 

(Unaudited) 
  

																																	
	Six Months Ended June 30, 2019	 	 	  	 	 	  	 	 	  	 	 	  	 
	  	 	 Number

of units
 (000s)
	 	 	Stapled
units	 	 	Contributed
surplus	 	 	Retained
earnings	 	 	 Accumulated

other
 comprehensive

income
	 	 	Stapled
unitholders’
equity	 	 	 Non-

controlling
 interests
	 	 	Equity	 
	 As at January 1, 2019
	 	 	45,685	 	 	$	2,063,778	 	 	$	95,787	 	 	$	124,501	 	 	$	211,452	 	 	$	2,495,518	 	 	$	1,467	 	 	$	2,496,985	 
	 Net income
	 	 	—	 	 	 	—	 	 	 	—	 	 	 	176,923	 	 	 	—	 	 	 	176,923	 	 	 	82	 	 	 	177,005	 
	 Other comprehensive loss
	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	(70,505	) 	 	 	(70,505	) 	 	 	(50	) 	 	 	(70,555	) 
	 Stapled unit offering, net of issuance costs (note 11(c))
	 	 	3,749	 	 	 	220,378	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	220,378	 	 	 	—	 	 	 	220,378	 
	 Distributions (note 10)
	 	 	—	 	 	 	—	 	 	 	—	 	 	 	(66,496	) 	 	 	—	 	 	 	(66,496	) 	 	 	(150	) 	 	 	(66,646	) 
	 Special distribution paid in units and immediately consolidated (note 10)
	 	 	—	 	 	 	41,128	 	 	 	(41,128	) 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 
	 Units issued under the stapled unit plan (note 11(a))
	 	 	10	 	 	 	605	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	605	 	 	 	—	 	 	 	605	 
	 Units repurchased for cancellation 
(note 11(b))
	 	 	(1	) 	 	 	(32	) 	 	 	(5	) 	 	 	—	 	 	 	—	 	 	 	(37	) 	 	 	—	 	 	 	(37	) 
	 As at June 30, 2019
	 	 	49,443	 	 	$	2,325,857	 	 	$	54,654	 	 	$	234,928	 	 	$	140,947	 	 	$	2,756,386	 	 	$	1,349	 	 	$	2,757,735	 
				
	 	 	 	 	 	 	 	 	 	 	 
	Six Months Ended June 30, 2018	 	 	  	 	 	  	 	 	  	 
	  	 	 Number

of units
 (000s)
	 	 	Stapled
units	 	 	Contributed
surplus	 	 	Deficit	 	 	 Accumulated

other
 comprehensive

income
	 	 	Stapled
unitholders’
equity	 	 	 Non-

controlling
 interests
	 	 	Equity	 
	 As at January 1, 2018
	 	 	46,903	 	 	$	2,118,460	 	 	$	60,274	 	 	$	(160,686	) 	 	$	118,566	 	 	$	2,136,614	 	 	$	1,248	 	 	$	2,137,862	 
	 Net income
	 	 	—	 	 	 	—	 	 	 	—	 	 	 	221,540	 	 	 	—	 	 	 	221,540	 	 	 	72	 	 	 	221,612	 
	 Other comprehensive income
	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	50,331	 	 	 	50,331	 	 	 	1	 	 	 	50,332	 
	 Distributions (note 10)
	 	 	—	 	 	 	—	 	 	 	—	 	 	 	(62,576	) 	 	 	—	 	 	 	(62,576	) 	 	 	(10	) 	 	 	(62,586	) 
	 Units issued under the stapled unit plan (note 11(a))
	 	 	64	 	 	 	3,233	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	3,233	 	 	 	—	 	 	 	3,233	 
	 Units repurchased for cancellation 
(note 11(b))
	 	 	(1,233	) 	 	 	(55,714	) 	 	 	(5,235	) 	 	 	—	 	 	 	—	 	 	 	(60,949	) 	 	 	—	 	 	 	(60,949	) 
	 As at June 30, 2018
	 	 	45,734	 	 	$	2,065,979	 	 	$	55,039	 	 	$	(1,722	) 	 	$	168,897	 	 	$	2,288,193	 	 	$	1,311	 	 	$	2,289,504	 

 See accompanying notes 

  
 Granite REIT 2019 Second Quarter
Report    5 













 Condensed Combined Statements of Cash Flows 

(Canadian dollars in thousands) 

(Unaudited) 
  

																					
	  	  	  	 	  	Three Months Ended
June 30,	 	 	Six Months Ended
June 30,	 
	  	  	Note	 	  	2019(1)	 	 	2018	 	 	2019(1)	 	 	2018	 
	 OPERATING ACTIVITIES
	  				  				 				 				 			
						
	 Net income
	  				  	$	98,677	 	 	$	149,209	 	 	$	177,005	 	 	$	221,612	 
	 Items not involving operating cash flows
	  	 	14(a)	 	  	 	(53,754	) 	 	 	(104,385	) 	 	 	(89,264	) 	 	 	(128,352	) 
	 Leasing commissions paid
	  				  	 	—	 	 	 	(2,259	) 	 	 	(224	) 	 	 	(3,991	) 
	 Tenant incentives paid
	  				  	 	(25	) 	 	 	(162	) 	 	 	(204	) 	 	 	(9,259	) 
	 Current income tax expense
	  	 	13(a)	 	  	 	1,678	 	 	 	2,839	 	 	 	3,597	 	 	 	4,832	 
	 Income taxes paid
	  				  	 	(2,445	) 	 	 	(3,058	) 	 	 	(3,683	) 	 	 	(3,968	) 
	 Interest expense
	  				  	 	7,396	 	 	 	5,103	 	 	 	14,602	 	 	 	10,088	 
	 Interest paid
	  				  	 	(7,882	) 	 	 	(5,654	) 	 	 	(14,087	) 	 	 	(9,510	) 
	 Changes in working capital balances
	  	 	14(b)	 	  	 	6,466	 	 	 	3,379	 	 	 	2,792	 	 	 	1,101	 
	 Cash provided by operating activities
	  	 	 	 	  	 	50,111	 	 	 	45,012	 	 	 	90,534	 	 	 	82,553	 
						
	 INVESTING ACTIVITIES
	  				  				 				 				 			
						
	 Investment properties:
	  				  				 				 				 			
	 Property acquisitions
	  	 	3	 	  	 	(219,126	) 	 	 	(327,256	) 	 	 	(383,744	) 	 	 	(399,352	) 
	 Proceeds from disposals, net
	  				  	 	(635	) 	 	 	—	 	 	 	25,628	 	 	 	356,479	 
	 Capital expenditures
	  				  				 				 				 			
	 — Maintenance or improvements
	  				  	 	(560	) 	 	 	(6,197	) 	 	 	(1,785	) 	 	 	(15,000	) 
	 — Developments or expansions
	  				  	 	(705	) 	 	 	(55	) 	 	 	(4,681	) 	 	 	(860	) 
	 Mortgage receivable proceeds
	  	 	5	 	  	 	16,845	 	 	 	30,000	 	 	 	16,845	 	 	 	30,000	 
	 Acquisition deposits
	  				  	 	(33,940	) 	 	 	(8,308	) 	 	 	(33,940	) 	 	 	(8,308	) 
	 Fixed asset additions
	  				  	 	(50	) 	 	 	(26	) 	 	 	(88	) 	 	 	(53	) 
	 Decrease in other assets
	  	 	 	 	  	 	—	 	 	 	(145	) 	 	 	—	 	 	 	(145	) 
	 Cash used in investing activities
	  	 	 	 	  	 	(238,171	) 	 	 	(311,987	) 	 	 	(381,765	) 	 	 	(37,239	) 
						
	 FINANCING ACTIVITIES
	  				  				 				 				 			
						
	 Monthly distributions paid
	  				  	 	(33,687	) 	 	 	(31,181	) 	 	 	(65,623	) 	 	 	(62,841	) 
	 Special distribution paid
	  	 	10	 	  	 	—	 	 	 	—	 	 	 	(13,710	) 	 	 	—	 
	 Repayment of lease obligations
	  	 	2(c)	 	  	 	(589	) 	 	 	—	 	 	 	(852	) 	 	 	—	 
	 Proceeds from bank indebtedness
	  				  	 	—	 	 	 	98,833	 	 	 	—	 	 	 	127,833	 
	 Repayments of bank indebtedness
	  				  	 	—	 	 	 	(8,657	) 	 	 	—	 	 	 	(70,420	) 
	 Financing costs paid
	  				  	 	—	 	 	 	—	 	 	 	(25	) 	 	 	(1,456	) 
	 Distributions to non-controlling interests
	  				  	 	(150	) 	 	 	(10	) 	 	 	(150	) 	 	 	(10	) 
	 Proceeds from stapled unit offering, net of issuance costs
	  	 	11(c)	 	  	 	220,378	 	 	 	—	 	 	 	220,378	 	 	 	—	 
	 Repurchase of stapled units
	  	 	11(b)	 	  	 	—	 	 	 	(9,856	) 	 	 	(37	) 	 	 	(60,949	) 
	 Cash provided by (used in) financing activities
	  	 	 	 	  	 	185,952	 	 	 	49,129	 	 	 	139,981	 	 	 	(67,843	) 
						
	 Effect of exchange rate changes on cash and cash
equivalents
	  	 	 	 	  	 	(2,021	) 	 	 	(5,781	) 	 	 	(10,134	) 	 	 	3,653	 
						
	 Net decrease in cash and cash equivalents during the period
	  				  	 	(4,129	) 	 	 	(223,627	) 	 	 	(161,384	) 	 	 	(18,876	) 
	 Cash and cash equivalents, beginning of period
	  	 	 	 	  	 	500,991	 	 	 	273,770	 	 	 	658,246	 	 	 	69,019	 
	 Cash and cash equivalents, end of period
	  	 	 	 	  	$	496,862	 	 	$	50,143	 	 	$	496,862	 	 	$	50,143	 

  

	(1)	 	 The Trust has early adopted the amendments to IFRS 3, Business Combinations, in the three month period ended
June 30, 2019 retrospectively to January 1, 2019 (note 2(c)). 


 See accompanying notes 

  
 6    Granite REIT 2019 Second
Quarter Report 













 Notes to Condensed Combined Financial Statements 

(All amounts in thousands of Canadian dollars unless otherwise noted) 

(Unaudited) 
  

	
	 1.  NATURE AND
DESCRIPTION OF THE TRUST


 Effective January 3, 2013, Granite Real Estate Inc. (“Granite Co.”) completed its conversion from a
corporate structure to a stapled unit real estate investment trust (“REIT”) structure. All of the common shares of Granite Co. were exchanged, on a one-for-one
basis, for stapled units, each of which consists of one unit of Granite Real Estate Investment Trust (“Granite REIT”) and one common share of Granite REIT Inc. (“Granite GP”). Granite REIT is an unincorporated, open-ended,
limited purpose trust established under and governed by the laws of the province of Ontario and created pursuant to a Declaration of Trust dated September 28, 2012 and as subsequently amended on January 3, 2013 and December 20, 2017.
Granite GP was incorporated on September 28, 2012 under the Business Corporations Act (British Columbia). Granite REIT, Granite GP and their subsidiaries (together “Granite” or the “Trust”) are carrying on the
business previously conducted by Granite Co. 
 The stapled units trade on the Toronto Stock Exchange and on the New York Stock Exchange. The
principal office of Granite REIT is 77 King Street West, Suite 4010, P.O. Box 159, Toronto-Dominion Centre, Toronto, Ontario, M5K 1H1, Canada. The registered office of Granite GP is Suite 2600, Three Bentall Centre, 595 Burrard Street, P.O.
Box 49314, Vancouver, British Columbia, V7X 1L3, Canada. 
 The Trust is a Canadian-based REIT engaged in the acquisition, development, ownership and
management of industrial, warehouse and logistics properties in North America and Europe. The Trust’s tenant base includes Magna International Inc. and its operating subsidiaries (together “Magna”) as its largest tenant, in addition
to tenants from various other industries. 
 These condensed combined financial statements were approved by the Board of Trustees of Granite REIT and
Board of Directors of Granite GP on July 31, 2019. 
  

	
	 2.  SIGNIFICANT
ACCOUNTING POLICIES


  

	(a)	 Basis of Presentation and Statement of Compliance 



The condensed combined financial statements for the three and six month periods ended June 30, 2019 have been prepared in accordance with
International Accounting Standard 34, Interim Financial Reporting (“IAS 34”) as issued by the International Accounting Standards Board (“IASB”). These interim condensed combined financial statements do not include all the
information and disclosures required in the annual financial statements, which were prepared in accordance with International Financial Reporting Standards (“IFRS”), and should be read in conjunction with the Trust’s annual financial
statements as at and for the year ended December 31, 2018. 
  

	(b)	 Combined Financial Statements and Basis of Consolidation 



As a result of the REIT conversion described in note 1, the Trust does not have a single parent; however, each unit of Granite REIT and each share of
Granite GP trade as a single stapled unit and accordingly, Granite REIT and Granite GP have identical ownership. Therefore, these financial statements have been prepared on a combined basis whereby the assets, liabilities and results of Granite GP
and Granite REIT have been combined. The combined financial statements include the subsidiaries of Granite GP and Granite REIT. Subsidiaries are fully consolidated by Granite GP or Granite REIT from the date of acquisition, being the date on which
control is obtained. The subsidiaries continue to be consolidated until the date that such control ceases. Control exists when Granite GP or Granite REIT have power, exposure or rights to variable returns and the ability to use their power over the
entity to affect the amount of returns it generates. 

  
 Granite REIT 2019 Second Quarter
Report    7 













 All intercompany balances, income and expenses and unrealized gains and losses resulting from
intercompany transactions are eliminated. 
  

	(c)	 Accounting Policies and New Standards Adopted 



The condensed combined financial statements have been prepared using the same accounting policies as were used for the Trust’s annual combined
financial statements and the notes thereto for the years ended December 31, 2018 and 2017, except for the adoption of the following new standards and interpretations effective January 1, 2019. As required by IAS 34, the nature and effect
of these changes are disclosed below: 
 Amendments to IFRS 3, Business Combinations 

In connection with the combined financial statements for the three and six month periods ended June 30, 2019, the Trust determined to early adopt
the amendments to IFRS 3, Business Combinations (“IFRS 3 Amendments”) effective January 1, 2019 in advance of their mandatory effective date of January 1, 2020. The Trust adopted the IFRS 3 Amendments prospectively and
therefore the comparative information presented for 2018 has not been restated. The IFRS 3 Amendments clarify the definition of a business in determining whether an acquisition is a business combination or an asset acquisition. The IFRS 3 Amendments
have removed the requirement for an assessment of whether market participants are capable of replacing any missing inputs or processes and continuing to produce outputs; the reference to an ability to reduce costs; and require, at a minimum, the
acquired set of activities and assets to include an input and a substantive process to meet the definition of a business. The IFRS 3 Amendments also provide for an optional concentration test to assess whether substantially all of the fair value of
the gross assets acquired is concentrated in a single identifiable asset or group of similar identifiable assets. The Trust has adopted the standard effective January 1, 2019 in the three and six month periods ended June 30, 2019. The
Trust did not recognize the impact of adopting the IFRS 3 Amendments in the condensed combined financial statements for the three months ended March 31, 2019 and 2018, issued on May 7, 2019 as it had not determined to early adopt the IFRS
3 Amendments at that time. The condensed combined statements of net income and cash flows for the six month periods ended June 30, 2019 include the recognition of the IFRS 3 Amendments retroactive to January 1, 2019. The impact from the
adoption of the IFRS 3 Amendments relating to the three month period ended March 31, 2019, and recognized in the six month period ended June 30, 2019 in each of the statements of net income and cash flows is as follows: 

 

					
	  	  	 Relating

to the Three
 Months Ended

March 31, 2019
	 
	 Condensed Combined Statements of Net Income:
	  			
	 Reduction in acquisition transaction costs
	  	$	411	 
	 Reduction in fair value gains on investment properties,
net
	  	 	(411	) 
	 Net impact to the Condensed Combined Statements of Net
Income
	  	$	—	 
		
	 Condensed Combined Statements of Cash Flows:
	  			
	 Reduction in fair value gains on investment properties within items not involving operating cash
flows (operating activities)
	  	$	411	 
	 Reduction in changes in working capital balances (operating activities)
	  	 	543	 
	 Increase in property acquisition costs (investing
activities)
	  	 	(954	) 
	 Net impact to the Condensed Combined Statements of Cash
Flows
	  	$	—	 

 The adoption of the IFRS 3 Amendments had no impact to the combined balance sheet as at June 30, 2019 and the
statements of comprehensive income for the three and six month periods ended June 30, 2019. 

  
 8    Granite REIT 2019 Second
Quarter Report 













 Following the adoption of the IFRS 3 Amendments, the Trust continues to account for business
combinations in which control is acquired under the acquisition method. When a property acquisition is made, the Trust considers the inputs, processes and outputs of the acquiree in assessing whether it meets the definition of a business. When the
acquired set of activities and assets lack a substantive process in place and will be integrated into the Trust’s existing operations, the acquisition does not meet the definition of a business and is accounted for as an asset acquisition. An
asset acquisition is accounted for as an acquisition of a group of assets and liabilities. The cost of the acquisition, including transaction costs, is allocated to the assets and liabilities acquired based on their relative fair values, and no
goodwill or deferred tax is recognized. Subsequently, where the acquired asset represents an investment property, it is measured at fair value in accordance with IAS 40, Investment Properties. 

IFRS 16, Leases 
 In January 2016,
the IASB issued IFRS 16, Leases (“IFRS 16”) which replaced IAS 17, Leases and its associated interpretative guidance. For contracts that are or contain a lease, IFRS 16 introduces significant changes to the accounting by
lessees, introducing a single, on-balance sheet accounting model that is similar to finance lease accounting, with limited exceptions for short-term leases or leases of low value assets. Lessor accounting
remains substantially unchanged as the distinction between operating and finance leases is retained. 
 The Trust has applied IFRS 16 using the
modified retrospective approach, and therefore the cumulative effect of initial application is recognized in retained earnings at January 1, 2019. Accordingly, the comparative information presented for 2018 has not been restated. 

As a lessee 
 Definition of a lease

 Previously, the Trust determined at contract inception whether an arrangement was or contained a lease under IAS 17. The Trust now
assesses whether a contract is or contains a lease based on the new definition of a lease. Under IFRS 16, a contract is or contains a lease if the contract conveys a right to control the use of an identified asset for a period of time in exchange
for consideration. 
 On transition to IFRS 16, the Trust applied IFRS 16 only to contracts that were previously identified as leases. Contracts that
were not identified as leases under IAS 17 and associated interpretative guidance were not reassessed as the practical expedient offered under the standard was applied. Therefore, the new definition of a lease under IFRS 16 has been applied only to
contracts entered into or changed on or after January 1, 2019. 
 In accordance with IFRS 16, at inception or on modification of a contract that
contains a lease component, the Trust allocates the consideration in the contract to each lease and non-lease component based on their relative stand-alone prices. 

Accounting policy 
 The Trust
recognizes a right-of-use asset and a lease obligation at the lease commencement date. The Trust presents
right-of-use assets that do not meet the definition of investment property in “fixed assets” on the combined balance sheet, the same line item as it presents
underlying assets of the same nature that it owns. The right-of-use asset is initially measured at cost and, subsequently, at cost less any accumulated depreciation and
impairment, and adjusted for certain remeasurements of the lease obligation. When a right-of-use asset meets the definition of investment property, it is presented in
“investment properties” on the combined balance sheet. The right-of-use asset is initially measured at cost and subsequently, it is measured at fair value in
accordance with the Trust’s accounting policies. 

  
 Granite REIT 2019 Second Quarter
Report    9 













 The lease liability is initially measured at the present value of the lease payments at the
commencement date, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, at the Trust’s incremental borrowing rate. Generally, the Trust uses its incremental borrowing rate as the discount rate.
The Trust presents lease liabilities in “lease obligations” on the combined balance sheet. 
 The lease obligation is subsequently
increased by the interest cost on the lease liability and decreased by lease payments made. It is remeasured when there is a change in future lease payments arising from a change in an index or rate, a change in the estimate of the amount expected
to be payable under a residual value guarantee or, as appropriate, a change in the assessment of whether a purchase or extension option is reasonably certain to be exercised or a termination option is reasonably certain not to be exercised. 

The Trust has applied judgment to determine the lease term for some lease contracts in which it is a lessee that include renewal or termination
options. The assessment of whether the Trust is reasonably certain to exercise such options impacts the lease term which, in turn, significantly affects the amount of lease obligations and right-of-use assets recognized. The Trust also applies judgment in determining the discount rate used to present value the lease obligations. 

Transition 
 In accordance with
IFRS 16, the Trust recognized right-of-use assets and lease obligations for applicable leases except for leases of low-value
assets for which the Trust has elected not to recognize right-of-use assets and lease liabilities. The Trust recognizes the lease payments associated with these low-value asset leases as an expense on a straight-line basis over the lease term. 
 The Trust leases assets
related to ground leases, office space and office equipment. Lease obligations were measured at the present value of the remaining lease payments, discounted at the Trust’s incremental borrowing rate as at January 1, 2019. 

Right-of-use assets are measured at either: 

 

	•	 	 Their carrying amount as if IFRS 16 had been applied since the commencement date, discounted using the lessee’s
incremental borrowing rate at the date of initial application; or 


  

	•	 	 An amount equal to the lease liability, adjusted by the amount of any prepaid or accrued lease payments.



 The Trust recognized a right-of-use asset at a
value equal to the lease obligation and, therefore, there was no impact to retained earnings as at January 1, 2019. 
 The Trust used the
following additional practical expedients when applying IFRS 16 to leases previously classified as operating leases under IAS 17: 
  

	•	 	 Applied the exemption not to recognize
right-of-use assets and obligations for leases with less than 12 months of lease term; 



 

	•	 	 Applied the exemption not to allocate the consideration in a contract to each lease and
non-lease component; 


  

	•	 	 Excluded initial direct costs from measuring the
right-of-use asset at the date of initial application; and 


  

	•	 	 Used hindsight when determining the lease term if the contract contains options to extend or terminate the lease.



 Impact on transition 

As at June 30, 2019, the Trust had leases for the use of office space, office and other equipment and three ground leases for the land upon which
four income-producing properties in Europe and Canada are 

  
 10    Granite REIT 2019
Second Quarter Report 













 
situated. In accordance with IFRS 16, the Trust recognized these operating leases as right-of-use assets and
recorded related lease liability obligations as follows: 
  

																									
	  	  	  

Fixed assets
	 	  	  	  	Investment
properties	 	  	  	  	Lease
obligations	 
	  	  	 Office

space
	 	  	Equipment	 	  	Total	 	  	  	  	 Ground

leases
	 	  	  	  	  	 
	 Balance at January 1, 2019
	  	$	1,780	 	  	$	46	 	  	$	1,826	 	  		  	$	11,801	 	  		  	$	13,627	 
	 Balance at June 30, 2019
	  	$	1,489	 	  	$	79	 	  	$	1,568	 	  	 	  	$	31,601	 	  	 	  	$	33,198	 

 When measuring lease liabilities for leases that were classified as operating leases, the Trust discounted lease
payments using its incremental borrowing rate at January 1, 2019. The weighted average rate applied is 4.4%. 
 During the three and six month
periods ended June 30, 2019, the Trust recorded an additional right-of-use asset and related lease obligation of $20.5 million for the ground lease associated
with the acquisition of two income-producing properties in Mississauga, Ontario in April 2019. The Trust also recorded additional right-of-use assets and lease
obligations of $39 thousand for equipment. 
 Also in accordance with IFRS 16, the Trust has recognized depreciation and interest costs, instead
of operating lease expense. During the three and six month periods ended June 30, 2019, the Trust recognized $0.2 million and $0.3 million of depreciation and amortization expense, respectively, and $0.4 million and
$0.5 million of interest expense from these leases, respectively. No depreciation is recognized for the right-of-use asset that meets the definition of investment
property. 
 Future minimum lease payments relating to the
right-of-use assets as at June 30, 2019 in aggregate and for the next five years and thereafter are as follows: 

 

					
	 Remainder of 2019
	  	$	224	 
	 2020
	  	 	578	 
	 2021
	  	 	615	 
	 2022
	  	 	360	 
	 2023
	  	 	138	 
	 2024 and thereafter
	  	 	31,283	 
	 	  	$	33,198	 

 The lease commitments as at December 31, 2018 comprised $27.2 million related to two ground leases in Europe
with annual payments of $0.5 million and $0.1 million expiring in 2049 and 2096, respectively, and $1.6 million related to certain other operating leases. On January 1, 2019, the Trust recognized lease obligations on the combined
balance sheet of $13.6 million for these aforementioned lease commitments which include the impact from present value discounting of $15.4 million and certain other adjustments of $0.2 million. 

As a lessor 
 The Trust leases its investment
properties, including right-of-use assets, to tenants and has determined that the in-place leases as at June 30, 2019 are
operating leases. The accounting policies applicable to the Trust as a lessor are in accordance with IAS 17. The Trust is not required to make any adjustments on transition to IFRS 16 for leases in which it is a lessor. 

  
 Granite REIT 2019 Second Quarter
Report    11 













 IFRIC 23, Uncertainty Over Income Tax Treatments 

In June 2017, the IFRS Interpretations Committee issued IFRIC 23, Uncertainty Over Income Tax Treatments (“IFRIC 23”) which
clarifies how the recognition and measurement requirements of IAS 12, Income Taxes, are applied where there is uncertainty over income tax treatments. This standard is effective for annual periods beginning on or after January 1, 2019.
The adoption of this standard did not have an impact on the combined financial statements. 
  

	
	
3.  ACQUISITIONS


 During the six month periods ended June 30, 2019 and 2018, Granite acquired income-producing properties consisting
of the following: 
 Acquisitions During the Six Months Ended June 30, 2019(1) 

 

																					
	Property	  	 Location	 	  	 Date acquired	 	  	Property
purchase price	 	  	Transaction
costs	 	  	Total
acquisition
cost	 
	 201 Sunridge Boulevard
	  	 	Wilmer, TX	 	  	 	March 1, 2019	 	  	$	58,087	 	  	$	223	 	  	$	58,310	 
	 3501 North Lancaster Hutchins Road
	  	 	Lancaster, TX	 	  	 	March 1, 2019	 	  	 	106,120	 	  	 	222	 	  	 	106,342	 
	 2020 & 2095 Logistics Drive(2)
	  	 	Mississauga, ON    	 	  	 	April 9, 2019	 	  	 	174,106	 	  	 	584	 	  	 	174,690	 
	 1901 Beggrow Street
	  	 	Columbus, OH	 	  	 	May 23, 2019	 	  	 	71,607	 	  	 	255	 	  	 	71,862	 
	 	  	 	 	 	  	 	 	 	  	$	409,920	 	  	$	1,284	 	  	$	411,204	 


  

	(1)	 	 The properties acquired in 2019 have been accounted for as asset acquisitions reflecting the early adoption of the IFRS
3 Amendments effective January 1, 2019 (note 2(c)). 



	(2) 	 	 Includes right-of-use asset related to
ground lease of $20.5 million (note 2(c)). 



Acquisitions During the Six Months Ended June 30, 2018 

 

													
	Property	  	 Location	 	  	 Date acquired	 	  	Property
purchase price	 
	 3870 Ronald Reagan Parkway
	  	 	Plainfield, IN	 	  	 	March 23, 2018	 	  	$	50,835	 
	 181 Antrim Commons Drive
	  	 	Greencastle, PA	 	  	 	April 4, 2018	 	  	 	44,323	 
				
	 Ohio portfolio (four properties):
	  				  				  			
	 10, 100 and 115 Enterprise Parkway and 15 Commerce
Parkway
	  	 	West Jefferson, OH	 	  	 	May 23, 2018	 	  	 	299,297	 
	 	  	 	 	 	  	 	 	 	  	$	394,455	 


 During the three and six month periods ended June 30, 2018, the Trust recognized $3.9 million and
$4.0 million of revenue, respectively, and $3.3 million and $3.4 million of net income, respectively, related to the aforementioned acquisitions. Had these acquisitions occurred on January 1, 2018, the Trust would have recognized
proforma revenue and net income of approximately $13.5 million and $11.8 million, respectively, during the six month period ended June 30, 2018. 

  
 12    Granite REIT 2019
Second Quarter Report 













 The following table summarizes the total consideration paid for the income-producing property
acquisitions and the fair value of the total identifiable net assets acquired at the acquisition dates: 
  

					
	Acquisitions During the Six Months Ended June 30,	  	2018	 
	 Purchase consideration
	  			
	 Cash on hand
	  	$	306,023	 
	 Cash sourced from credit facility
	  	 	93,329	 
	 Total cash consideration paid
	  	$	399,352	 
	 Recognized amounts of identifiable net assets acquired measured at their respective fair values:
	  			
	 Investment properties
	  	$	394,455	 
	 Working capital
	  	 	4,897	 
	 Total identifiable net assets
	  	$	399,352	 


 During the six month period ended June 30, 2018, the Trust incurred $1.5 million of legal and advisory
costs associated with the aforementioned acquisitions. The Trust incurred an additional $0.2 million of costs related to pursuing other acquisition opportunities. These costs are included in acquisition transaction costs in the condensed
combined statements of net income. 
 Acquisition Deposits 

As at June 30, 2019, Granite had made deposits of $60.1 million relating to property acquisitions. A deposit of $26.2 million (US$20.0
million) was made in connection with a contractual commitment to acquire a property under development in the state of Texas. This commitment to purchase the property under development is subject to specific confidentiality provisions and customary
closing conditions including certain purchase rights in favour of the tenant and is expected to close in the fourth quarter of 2019 following construction of the building and commencement of the lease. The contractual commitment to purchase this
property as at June 30, 2019 is included in the commitments and contingencies note (note 17(b)). 
 As at June 30, 2019, $33.8 million
(US$25.8 million) was also paid to acquire 190.6 acres of development land located in Harris County, Texas. Granite entered into a joint arrangement with a third-party and purchased the development land on July 1, 2019 for total cash
consideration of $33.4 million (US$25.4 million) (note 18(a)). 
  

	
	 4.  INVESTMENT
PROPERTIES


  

									
	As at	  	June 30, 2019	 	  	December 31, 2018	 
	 Income-producing properties
	  	$	3,775,947	 	  	$	3,403,985	 
	 Properties under development
	  	 	18,360	 	  	 	17,009	 
	 Land held for development
	  	 	4,739	 	  	 	3,984	 
	 	  	$	3,799,046	 	  	$	3,424,978	 



  
 Granite REIT 2019 Second Quarter
Report    13 













 Changes in investment properties are shown in the following table: 

 

																																	
	  	 	Six Months Ended June 30, 2019	 	 	  	 	 	  	 	 	Year Ended December 31, 2018	 
	  	 	Income-
producing
properties	 	 	Properties
under
development	 	 	Land held for
development	 	 	  	 	 	  	 	 	Income-
producing
properties	 	 	 Properties

under
development
	 	 	Land held for
development	 
	 Balance, beginning of period
	 	$	3,403,985	 	 	$	17,009	 	 	$	3,984	 	 			 	 				 	$	2,714,684	 	 	$	—	 	 	$	18,884	 
	 Ground leases(1)
(note 2(c))
	 	 	11,801	 	 	 	—	 	 	 	—	 	 	 	 	 	 	 	 	 	 	 	—	 	 	 	—	 	 	 	—	 
	 Adjusted balance, beginning of period
	 	$	3,415,786	 	 	$	17,009	 	 	$	3,984	 	 			 	 				 	$	2,714,684	 	 	$	—	 	 	$	18,884	 
	 Additions
	 				 				 				 			 	 				 				 				 			
	 — Capital expenditures:
	 				 				 				 			 	 				 				 				 			
	 Maintenance or improvements
	 	 	1,117	 	 	 	—	 	 	 	—	 	 			 	 				 	 	8,164	 	 	 	—	 	 	 	—	 
	 Developments or expansions
	 	 	3,382	 	 	 	2,150	 	 	 	—	 	 			 	 				 	 	19,986	 	 	 	287	 	 	 	66	 
	 — Acquisitions (note 3)
	 	 	411,204	 	 	 	—	 	 	 	—	 	 			 	 				 	 	542,998	 	 	 	—	 	 	 	1,232	 
	 — Leasing commissions
	 	 	305	 	 	 	—	 	 	 	—	 	 			 	 				 	 	3,340	 	 	 	—	 	 	 	—	 
	 — Tenant incentives
	 	 	303	 	 	 	—	 	 	 	—	 	 			 	 				 	 	816	 	 	 	—	 	 	 	—	 
	 Transfers to properties under development
	 	 	—	 	 	 	—	 	 	 	—	 	 			 	 				 	 	(12,206	) 	 	 	16,473	 	 	 	(4,267	) 
	 Fair value gains, net
	 	 	118,509	 	 	 	—	 	 	 	911	 	 			 	 				 	 	353,258	 	 	 	—	 	 	 	1,253	 
	 Foreign currency translation, net
	 	 	(123,602	) 	 	 	(799	) 	 	 	(156	) 	 			 	 				 	 	147,336	 	 	 	249	 	 	 	196	 
	 Amortization of straight-line rent
	 	 	2,688	 	 	 	—	 	 	 	—	 	 			 	 				 	 	4,274	 	 	 	—	 	 	 	—	 
	 Amortization of tenant incentives
	 	 	(2,596	) 	 	 	—	 	 	 	—	 	 			 	 				 	 	(5,402	) 	 	 	—	 	 	 	—	 
	 Other changes
	 	 	92	 	 	 	—	 	 	 	—	 	 			 	 				 	 	(972	) 	 	 	—	 	 	 	—	 
	 Classified as assets held for sale (note 5)
	 	 	(51,241	) 	 	 	—	 	 	 	—	 	 	 	 	 	 	 	 	 	 	 	(372,291	) 	 	 	—	 	 	 	(13,380	) 
	 Balance, end of period
	 	$	3,775,947	 	 	$	18,360	 	 	$	4,739	 	 	 	 	 	 	 	 	 	 	$	3,403,985	 	 	$	17,009	 	 	$	3,984	 


  

	(1)	 	 Impact of adoption of IFRS 16, Leases effective January 1, 2019. 



During the six month period ended June 30, 2019, the Trust disposed of six properties previously classified as assets held for sale for aggregate
gross proceeds of $43.8 million (note 5). The fair value gains during the six month period ended June 30, 2019, excluding the six properties sold in the period, were $119.4 million. As at June 30, 2019, six properties with an
aggregate fair value of $50.5 million were classified as assets held for sale (note 5). 
 The Trust determines the fair value of an
income-producing property based upon, among other things, rental income from current leases and assumptions about rental income from future leases reflecting market conditions and lease renewals at the applicable balance sheet dates, less future
cash outflows in respect of such leases. Fair values are primarily determined by discounting the expected future cash flows, generally over a term of 10 years, plus a terminal value based on the application of a capitalization rate to estimated year
11 cash flows. The fair values of properties under development are measured using a discounted cash flow model, net of costs to complete, as of the balance sheet date. The Trust measures its investment properties using valuations prepared by
management. The Trust does not measure its investment properties based on valuations prepared by external appraisers but uses such external appraisals as data points, together with other external market information accumulated by management, in
arriving at its own conclusions on values. Management uses valuation assumptions such as discount rates, terminal capitalization rates and market rental rates applied in external appraisals or sourced from valuation experts; however, the Trust also
uses its historical renewal experience with tenants, its direct knowledge of the specialized nature of Granite’s portfolio and tenant profile and its knowledge of the actual condition of the properties in making business judgments about lease
renewal probabilities, renewal rents and capital expenditures. There has been no change in the valuation methodology during the period. 
  

  
 14    Granite REIT 2019
Second Quarter Report 













 Included in investment properties is $16.8 million (December 31, 2018 — $14.8 million) of
net straight-line rent receivable arising from the recognition of rental revenue on a straight-line basis over the lease term. 
 Details about
contractual obligations to purchase, construct and develop properties can be found in the commitments and contingencies note (note 17). 
 Tenant
minimum rental commitments payable to Granite on non-cancellable operating leases (excluding assets held for sale) as at June 30, 2019 are as follows: 

 

					
	 Not later than 1 year
	  	$	237,168	 
	 Later than 1 year and not later than 5 years
	  	 	804,795	 
	 Later than 5 years
	  	 	565,859	 
	 	  	$	1,607,822	 


 Valuations are most sensitive to changes in discount rates and terminal capitalization rates. The key valuation
metrics for income-producing properties by country are set out below: 
  

																																	
	As at	 	June 30, 
2019(1)	 	 	  	 	 	  	 	 	December 31, 
2018(1)	 
	  	 	Weighted
average(2)	 	 	Maximum	 	 	Minimum	 	 	  	 	 	  	 	 	Weighted
average(2)	 	 	Maximum	 	 	Minimum	 
	 Canada
	 				 				 				 			 	 				 				 				 			
	 Discount rate
	 	 	5.86%	 	 	 	7.00%	 	 	 	5.00%	 	 			 	 				 	 	5.63%	 	 	 	7.75%	 	 	 	5.00%	 
	 Terminal capitalization rate
	 	 	5.87%	 	 	 	7.00%	 	 	 	5.00%	 	 			 	 				 	 	6.01%	 	 	 	7.00%	 	 	 	5.00%	 
					 				
	 United States
	 				 				 				 			 	 				 				 				 			
	 Discount rate
	 	 	6.53%	 	 	 	9.50%	 	 	 	5.00%	 	 			 	 				 	 	6.68%	 	 	 	10.00%	 	 	 	5.75%	 
	 Terminal capitalization rate
	 	 	6.45%	 	 	 	8.75%	 	 	 	5.25%	 	 			 	 				 	 	6.46%	 	 	 	9.75%	 	 	 	5.25%	 
					 				
	 Germany
	 				 				 				 			 	 				 				 				 			
	 Discount rate
	 	 	6.90%	 	 	 	8.25%	 	 	 	5.70%	 	 			 	 				 	 	6.89%	 	 	 	8.25%	 	 	 	5.70%	 
	 Terminal capitalization rate
	 	 	6.63%	 	 	 	8.75%	 	 	 	5.00%	 	 			 	 				 	 	6.89%	 	 	 	8.75%	 	 	 	5.25%	 
					 				
	 Austria
	 				 				 				 			 	 				 				 				 			
	 Discount rate
	 	 	7.95%	 	 	 	10.00%	 	 	 	7.00%	 	 			 	 				 	 	8.37%	 	 	 	10.00%	 	 	 	8.00%	 
	 Terminal capitalization rate
	 	 	7.33%	 	 	 	9.75%	 	 	 	6.75%	 	 			 	 				 	 	7.88%	 	 	 	10.00%	 	 	 	7.00%	 
					 				
	 Netherlands
	 				 				 				 			 	 				 				 				 			
	 Discount rate
	 	 	5.40%	 	 	 	6.00%	 	 	 	5.15%	 	 			 	 				 	 	5.93%	 	 	 	6.50%	 	 	 	5.70%	 
	 Terminal capitalization rate
	 	 	6.52%	 	 	 	8.26%	 	 	 	5.60%	 	 			 	 				 	 	6.48%	 	 	 	7.45%	 	 	 	6.00%	 
					 				
	 Other
	 				 				 				 			 	 				 				 				 			
	 Discount rate
	 	 	8.34%	 	 	 	9.50%	 	 	 	6.75%	 	 			 	 				 	 	8.23%	 	 	 	9.50%	 	 	 	6.75%	 
	 Terminal capitalization rate
	 	 	8.42%	 	 	 	10.00%	 	 	 	6.50%	 	 			 	 				 	 	8.48%	 	 	 	10.00%	 	 	 	6.75%	 
					 				
	 Total
	 				 				 				 			 	 				 				 				 			
	 Discount rate
	 	 	6.70%	 	 	 	10.00%	 	 	 	5.00%	 	 			 	 				 	 	6.90%	 	 	 	10.00%	 	 	 	5.00%	 
	 Terminal capitalization rate
	 	 	6.56%	 	 	 	10.00%	 	 	 	5.00%	 	 	 	 	 	 	 	 	 	 	 	6.81%	 	 	 	10.00%	 	 	 	5.00%	 


  

	(1)	 	 Excludes assets held for sale at the respective period end (note 5). 



	(2)	 	 Weighted based on income-producing property fair value. 



  
 Granite REIT 2019 Second Quarter
Report    15 














	
	 5.  ASSETS HELD FOR
SALE AND DISPOSITIONS


 Assets Held for Sale 
 At
June 30, 2019, six investment properties located in the United States and Canada are classified as assets held for sale. The six properties, having an aggregate fair value of $50.5 million, consist of the following: 

 

									
	Property	  	 Location	 	  	Fair value	 
	 Michigan properties (five properties):
	  				  			
	 6151 Bancroft Avenue
	  	 	Alto, MI	 	  			
	 3501 John F Donnelly Drive
	  	 	Holland, MI	 	  			
	 3575 128th Avenue
	  	 	Holland, MI	 	  			
	 3601 John F Donnelly Drive
	  	 	Holland, MI	 	  			
	 1800 Hayes Street
	  	 	Grand Haven, MI	 	  	$	37,961	 
			
	 330 Finchdene Square
	  	 	Toronto, ON	 	  	 	12,500	 
	 	  	 	 	 	  	$	50,461	 


 Dispositions 

During the six month period ended June 30, 2019, six properties located in Canada and the United States previously classified as assets held for
sale at December 31, 2018 were disposed. The properties consist of the following: 
  

													
	Property	  	 Location	 	  	Date disposed	 	  	Sale price	 
	 3 Walker Drive
	  	 	Brampton, ON	 	  	 	January 15, 2019	 	  	$	13,380	 
				
	 Iowa properties (four properties):
	  				  				  			
	 403 S 8th Street
	  	 	Montezuma, IA	 	  				  			
	 1951 A Avenue
	  	 	Victor, IA	 	  				  			
	 408 N Maplewood Avenue
	  	 	Williamsburg, IA	 	  				  			
	 411 N Maplewood Avenue
	  	 	Williamsburg, IA	 	  	 	February 25, 2019	 	  	 	22,323	 
				
	 375 Edward Street
	  	 	Richmond Hill, ON	 	  	 	February 27, 2019	 	  	 	8,050	 
	 	  	 	 	 	  	 	 	 	  	$	43,753	 


 The gross proceeds of $22.3 million (US$16.9 million) for the four properties in Iowa included a vendor
take-back mortgage of $16.8 million (US$12.7 million). The mortgage receivable bore interest at 5.25% per annum and was repaid on June 18, 2019. 

The following table summarizes the fair value changes in properties classified as assets held for sale: 

 

									
	  	  	
Six Months Ended

June 30, 2019
	 	 	 Year Ended

December 31, 2018
	 
	 Balance, beginning of period
	  	$	44,238	 	 	$	391,453	 
	 Fair value gains, net
	  	 	230	 	 	 	196	 
	 Foreign currency translation, net
	  	 	(1,495	) 	 	 	(3,466	) 
	 Disposals
	  	 	(43,753	) 	 	 	(729,608	) 
	 Classified as assets held for sale from investment properties (note 4)
	  	 	51,241	 	 	 	385,671	 
	 Other
	  	 	—	 	 	 	(8	) 
	 Balance, end of period
	  	$	50,461	 	 	$	44,238	 



  
 16    Granite REIT 2019
Second Quarter Report 













 During the six month period ended June 30, 2019, Granite incurred $1.4 million (2018
— $1.2 million) of broker commissions and legal and advisory costs associated with the disposal or planned disposal of the assets held for sale which are included in loss on sale of investment properties on the condensed combined statements of
net income. 
  

	
	 6.  OTHER
ASSETS


 Other assets consist of: 
  

									
	As at	  	June 30, 2019	 	  	December 31, 2018	 
	 Deferred financing costs associated with the revolving credit facility
	  	$	1,041	 	  	$	1,172	 
	 Long-term receivables
	  	 	413	 	  	 	448	 
	 Long-term proceeds receivable associated with a property disposal
(note 7)
	  	 	—	 	  	 	11,805	 
	 	  	$	1,454	 	  	$	13,425	 


  

	
	 7.  CURRENT
ASSETS


 Other Receivable 
 As at
June 30, 2019, other receivable includes $11.3 million (US$8.7 million) of proceeds receivable associated with the disposal of a property in South Carolina in September 2018 that is expected to be received in the first quarter of 2020. The
estimated sale price for the property was determined using an income approach that assumed a forecast consumer price index inflation factor at the date of disposition. Accordingly, the proceeds receivable is subject to change and will be dependent
upon the actual consumer price index inflation factor as at December 31, 2019. At December 31, 2018, the proceeds receivable was $11.8 million (US$8.7 million) and was recorded in other assets (note 6). 

 

	
	 8.  UNSECURED DEBT AND
CROSS CURRENCY INTEREST RATE SWAPS


  

	(a)	 Unsecured Debentures and Term Loans, Net 



 

																					
	As at	  	        
	 	  	June 30, 2019	 	  	December 31, 2018	 
	  	  	Maturity Date	 	  	Amortized
Cost(1)	 	  	 Principal

issued and
outstanding
	 	  	Amortized
Cost(1)	 	  	 Principal

issued and
outstanding
	 
	 2021 Debentures
	  	 	July 5, 2021	 	  	$	249,535	 	  	$	250,000	 	  	$	249,424	 	  	$	250,000	 
	 2023 Debentures
	  	 	November 30, 2023	 	  	 	398,584	 	  	 	400,000	 	  	 	398,425	 	  	 	400,000	 
	 2022 Term Loan(2)
	  	 	December 19, 2022	 	  	 	241,674	 	  	 	242,165	 	  	 	251,853	 	  	 	252,414	 
	 2025 Term Loan
	  	 	December 12, 2025	 	  	 	298,806	 	  	 	300,000	 	  	 	298,712	 	  	 	300,000	 
	 	  	 	 	 	  	$	1,188,599	 	  	$	1,192,165	 	  	$	1,198,414	 	  	$	1,202,414	 


  

	(1)	 	 The amounts outstanding are net of deferred financing costs. The deferred financing costs are amortized using the
effective interest method and are recorded in interest expense. 



	(2)	 	 The term loan maturing on December 19, 2022 is denominated in US dollars and was originally drawn in the amount of
US$185.0 million. As at June 30, 2019 and December 31, 2018, US$185.0 million remains outstanding. 



  
 Granite REIT 2019 Second Quarter
Report    17 














	(b)	 Cross Currency Interest Rate Swaps 



 

									
	As at	  	June 30, 2019	 	  	December 31, 2018	 
	 Financial liabilities at fair value
	  				  			
	 2021 Cross Currency Interest Rate Swap
	  	$	11,018	 	  	$	26,877	 
	 2023 Cross Currency Interest Rate Swap
	  	 	33,438	 	  	 	56,922	 
	 2022 Cross Currency Interest Rate Swap
	  	 	5,448	 	  	 	3,826	 
	 2025 Cross Currency Interest Rate Swap
	  	 	13,890	 	  	 	17,132	 
	 	  	$	63,794	 	  	$	104,757	 


 On July 3, 2014, the Trust entered into a cross currency interest rate swap (the “2021 Cross Currency
Interest Rate Swap”) to exchange the 3.788% semi-annual interest payments from the debentures that mature in 2021 (“2021 Debentures”) for Euro denominated payments at a 2.68% fixed interest rate. In addition, under the terms of the
swap, the Trust will pay principal proceeds of €171.9 million in exchange for which it will receive $250.0 million on July 5, 2021. 

On December 20, 2016, the Trust entered into a cross currency interest rate swap (the “2023 Cross Currency Interest Rate Swap”) to
exchange the 3.873% semi-annual interest payments from the debentures that mature in 2023 (“2023 Debentures”) for Euro denominated payments at a 2.43% fixed interest rate. In addition, under the terms of the swap, the Trust will pay
principal proceeds of €281.1 million in exchange for which it will receive $400.0 million on November 30, 2023. 

On December 19, 2018, the Trust entered into a cross currency interest rate swap (the “2022 Cross Currency Interest Rate Swap”) to
exchange the LIBOR plus margin monthly interest payments from the term loan that matures in 2022 (“2022 Term Loan”) for Euro denominated payments at a 1.225% fixed interest rate. In addition, under the terms of the swap, the Trust will pay
principal proceeds of €163.0 million in exchange for which it will receive US$185.0 million on December 19, 2022. 

On December 12, 2018, the Trust entered into a cross currency interest rate swap (the “2025 Cross Currency Interest Rate Swap”) to
exchange the CDOR plus margin monthly interest payments from the term loan that matures in 2025 (“2025 Term Loan”) for Euro denominated payments at a 2.202% fixed interest rate. In addition, under the terms of the swap, the Trust will pay
principal proceeds of €198.2 million in exchange for which it will receive $300.0 million on December 12, 2025. 

The cross currency interest rate swaps are designated as net investment hedges of the Trust’s investment in foreign operations. In addition, the
Trust has on occasion designated its US dollar draws from the credit facility as net investment hedges of its investment in the US operations. The effectiveness of the hedges are assessed quarterly. For the three and six month periods ended
June 30, 2019, the Trust has assessed that the hedges continued to be effective. As an effective hedge, the fair value gains or losses on the cross currency interest rate swaps and the foreign exchange gains or losses on the outstanding 2022
Term Loan are recognized in other comprehensive income. The Trust has elected to record the differences resulting from the lower interest rate associated with the cross currency interest rate swaps in the condensed combined statements of net income.


  
 18    Granite REIT 2019
Second Quarter Report 














	
	 9.  CURRENT
LIABILITIES


 Deferred Revenue 
 Deferred
revenue relates to prepaid and unearned revenue received from tenants and fluctuates with the timing of rental receipts. 
 Bank Indebtedness 

On February 1, 2018, the Trust entered into an unsecured revolving credit facility in the amount of $500.0 million that is available by way
of Canadian dollar, US dollar or Euro denominated loans or letters of credit and matures on February 1, 2023. The Trust has the option to extend the maturity date by one year to February 1, 2024 subject to the agreement of lenders in
respect of a minimum of 662⁄3% of the aggregate amount committed under the facility. The credit facility provides the Trust with the ability to increase the amount
of the commitment by an additional aggregate principal amount of up to $100.0 million with the consent of the participating lenders. As at June 30, 2019, the Trust had no amounts (December 31, 2018 — nil) drawn from the credit
facility and $1.1 million (December 31, 2018 — $0.1 million) in letters of credit issued against the facility. 
 Accounts Payable and Accrued
Liabilities 
  

									
	As at	  	June 30, 2019	 	  	December 31, 2018	 
	 Accounts payable
	  	$	7,573	 	  	$	5,352	 
	 Accrued salaries, incentives and benefits
	  	 	4,691	 	  	 	5,364	 
	 Accrued interest payable
	  	 	6,528	 	  	 	6,606	 
	 Accrued construction payable
	  	 	2,610	 	  	 	2,429	 
	 Accrued professional fees
	  	 	4,247	 	  	 	2,910	 
	 Accrued employee unit-based compensation
	  	 	4,576	 	  	 	3,193	 
	 Accrued trustee/director unit-based compensation
	  	 	2,539	 	  	 	2,330	 
	 Accrued property operating costs
	  	 	4,320	 	  	 	2,013	 
	 Accrued land transfer tax in connection with an acquisition
	  	 	—	 	  	 	5,499	 
	 Accrued leasing commissions
	  	 	486	 	  	 	407	 
	 Accrual associated with a property disposal
	  	 	1,964	 	  	 	2,047	 
	 Unrealized foreign exchange forward contracts
	  	 	1,655	 	  	 	10	 
	 Other accrued liabilities
	  	 	4,122	 	  	 	3,807	 
	 	  	$	45,311	 	  	$	41,967	 


 In connection with the disposal of a property in South Carolina in September 2018, Granite has retained an
obligation to make certain repairs to the building. Accordingly, as at June 30, 2019, a liability of approximately $2.0 million (December 31, 2018 — $2.0 million) is included in the accrual associated with a property disposal above.
The estimated amount was determined using a third-party report but can change over time as the repairs are completed. 
  

	
	 10.  DISTRIBUTIONS TO
STAPLED UNITHOLDERS


 Total distributions declared to stapled unitholders in the three month period ended June 30, 2019 were
$34.6 million (2018 — $31.1 million) or 69.9 cents per stapled unit (2018 — 68.1 cents per stapled unit). Total distributions declared to stapled unitholders in the six month period ended June 30, 2019 were $66.5 million
(2018 — $62.6 million) or $1.40 per stapled unit (2018 — $1.36 per stapled unit). Distributions payable at June 30, 2019 of $11.5 million, representing the June 2019 distribution, were paid on July 15, 2019. Distributions
payable at December 31, 2018 of $24.3 million were paid on January 15, 2019 and represented 

  
 Granite REIT 2019 Second Quarter
Report    19 













 
the December 2018 monthly distributions of $10.6 million and the cash portion of a special distribution of $13.7 million (30.0 cents per stapled unit). 

A special distribution was declared in December 2018 of $1.20 per stapled unit, which comprised of 30.0 cents per unit payable in cash and 90.0 cents
per unit payable by the issuance of stapled units. On January 15, 2019, immediately following the issuance of the stapled units, the stapled units were consolidated such that each unitholder held the same number of stapled units after the
consolidation as each unitholder held prior to the special distribution. The special distribution declared of $41.1 million was recorded to contributed surplus in December 2018, in accordance with IAS 32, Financial Instruments: Presentation,
as the Trust was settling the distribution with a fixed number of its own equity instruments. In January 2019, upon the issuance of the stapled units, the stapled units account increased and contributed surplus decreased by $41.1 million,
respectively. 
 On July 17, 2019, distributions of $11.5 million or 23.3 cents per stapled unit were declared and will be paid on
August 15, 2019. 
  

	
	 11.  STAPLED
UNITHOLDERS’ EQUITY


  

	(a)	 Unit-Based Compensation 



Incentive Stock Option Plan 
 The Incentive
Stock Option Plan allows for the grant of stock options or stock appreciation rights to directors, officers, employees and consultants. As at June 30, 2019 and December 31, 2018, there were no options outstanding under this plan. 

Director/Trustee Deferred Share Unit Plan 

The Trust has two Non-Employee Director Share-Based Compensation Plans (the “DSPs”) which provide for
a deferral of up to 100% of each non-employee director’s total annual remuneration, at specified levels elected by each director, until such director ceases to be a director. A reconciliation of the
changes in the notional deferred share units (“DSUs”) outstanding is presented below: 
  

																	
	  	 	2019	 	 	2018	 
	  	 	Number
(000s)	 	 	 Weighted Average
Grant Date

Fair Value
	 	 	Number
(000s)	 	 	Weighted Average
Grant Date
Fair Value	 
	 DSUs outstanding, January 1
	 	 	44	 	 	$	46.01	 	 	 	28	 	 	$	41.88	 
	 Granted
	 	 	9	 	 	 	54.45	 	 	 	8	 	 	 	51.69	 
	 Settled
	 	 	(11	) 	 	 	51.57	 	 	 	—	 	 	 	—	 
	 DSUs outstanding, June 30
	 	 	42	 	 	$	46.33	 	 	 	36	 	 	$	44.14	 



  
 20    Granite REIT 2019
Second Quarter Report 













 Executive Deferred Stapled Unit Plan 

The Trust has an Executive Share Unit Plan (the “Restricted Stapled Unit Plan”) which is designed to provide equity-based compensation in the
form of stapled units to executives and other employees. A reconciliation of the changes in notional stapled units outstanding under the Restricted Stapled Unit Plan is presented below: 

 

																	
	  	 	2019	 	  	2018	 
	  	 	Number
(000s)	 	 	Weighted Average
Grant Date
Fair Value	 	  	Number
(000s)	 	 	Weighted Average
Grant Date
Fair Value	 
	 Restricted stapled units outstanding, January 1
	 	 	117	 	 	$	50.34	 	  	 	106	 	 	$	43.32	 
	 New grants(1)
	 	 	42	 	 	 	60.68	 	  	 	23	 	 	 	50.19	 
	 Forfeited
	 	 	(1	) 	 	 	47.06	 	  	 	—	 	 	 	—	 
	 Settled in cash
	 	 	(12	) 	 	 	45.10	 	  	 	—	 	 	 	—	 
	 Settled in stapled units
	 	 	(10	) 	 	 	45.10	 	  	 	(64	) 	 	 	42.14	 
	 Restricted stapled units outstanding, June 30(1)
	 	 	136	 	 	$	54.47	 	  	 	65	 	 	$	46.91	 


  

	(1)	 	 New grants include 9,418 performance based units granted during the six month period ended June 30, 2019 (2018
— nil). Total stapled units outstanding at June 30, 2019 include a total of 13,148 performance based units granted (June 30, 2018 — nil). 



The Trust’s unit-based compensation expense recognized in general and administrative expenses was: 

 

																	
	  	  	Three Months Ended
June 30,	 	  	Six Months 
Ended
June 30,	 
	  	  	        2019	 	 	        2018	 	  	        2019	 	  	        2018	 
	 DSPs for trustees/directors
	  	$	135	 	 	$	311	 	  	$	883	 	  	$	563	 
	 Restricted Stapled Unit Plan for executives and employees
	  	 	1,361	 	 	 	502	 	  	 	2,786	 	  	 	1,460	 
	 Unit-based compensation expense
	  	$	1,496	 	 	$	813	 	  	$	3,669	 	  	$	2,023	 
	 Fair value remeasurement (recovery) expense included in the
above
	  	$	(176	) 	 	$	237	 	  	$	1,033	 	  	$	454	 


  

	(b)	 Normal Course Issuer Bid 



On May 14, 2019, Granite announced the acceptance by the Toronto Stock Exchange (“TSX”) of Granite’s Notice of Intention to Make a
Normal Course Issuer Bid (“NCIB”). Pursuant to the NCIB, Granite proposes to purchase through the facilities of the TSX and any alternative trading system in Canada, from time to time and if considered advisable, up to an aggregate of
4,853,666 of Granite’s issued and outstanding stapled units. The NCIB commenced on May 21, 2019 and will conclude on the earlier of the date on which purchases under the bid have been completed and May 20, 2020. Pursuant to the
policies of the TSX, daily purchases made by Granite through the TSX may not exceed 41,484 stapled units, subject to certain exceptions. Granite entered into an automatic securities purchase plan with a broker in order to facilitate repurchases of
the stapled units under the NCIB during specified blackout periods. Pursuant to a previous notice of intention to conduct a NCIB, Granite received approval from the TSX to purchase stapled units for the period May 18, 2018 to May 17, 2019.


  
 Granite REIT 2019 Second Quarter
Report    21 













 During the six month period ended June 30, 2019, Granite repurchased 700 stapled units (2018
— 1,233,459 stapled units) for consideration of less than $0.1 million (2018 — $60.9 million). The difference between the repurchase price and the average cost of the stapled units of less than $0.1 million (2018 — $5.2
million) was recorded to contributed surplus. 
  

	(c)	 Stapled Unit Offering 



On April 30, 2019, Granite completed an offering of 3,749,000 stapled units at a price of $61.50 per unit for gross proceeds of
$230.6 million, including 489,000 stapled units issued pursuant to the exercise of the over-allotment option granted to the underwriters. Total costs related to the offering totaled $10.2 million and were recorded directly to stapled
unitholders’ equity. 
  

	(d)	 Accumulated Other Comprehensive Income 



Accumulated other comprehensive income consists of the following: 

 

									
	As at June 30,	  	2019	 	 	2018	 
	 Foreign currency translation gains on investments in subsidiaries, net of related hedging activities and non-controlling interests(1)
	  	$	208,618	 	 	$	249,445	 
	 Fair value losses on derivatives designated as net investment
hedges
	  	 	(67,671	) 	 	 	(80,548	) 
	 	  	$	140,947	 	 	$	168,897	 


  

	(1) 	 	 Includes foreign currency translation gains and losses from non-derivative
financial instruments designated as net investment hedges. 


  

	
	 12.  RECOVERIES, COSTS
AND EXPENSES


  

	(a)	 Tenant recoveries revenue consists of: 



 

																	
	  	  	Three Months Ended
June 30,	 	  	Six Months Ended
June 30,	 
	  	  	        2019	 	  	        2018	 	  	        2019	 	  	        2018	 
	 Property taxes
	  	$	5,481	 	  	$	4,819	 	  	$	10,165	 	  	$	10,036	 
	 Property insurance
	  	 	538	 	  	 	510	 	  	 	1,056	 	  	 	1,046	 
	 Operating costs
	  	 	1,700	 	  	 	1,445	 	  	 	3,811	 	  	 	2,466	 
	 	  	$	7,719	 	  	$	6,774	 	  	$	15,032	 	  	$	13,548	 



  
 22    Granite REIT 2019
Second Quarter Report 














	(b)	 Property operating costs consist of: 



 

																	
	  	  	Three Months Ended
June 30,	 	  	Six Months Ended
June 30,	 
	  	  	        2019	 	  	        2018	 	  	        2019	 	  	        2018	 
	 Non-recoverable from tenants:
	  				  				  				  			
	 Property taxes and utilities
	  	$	355	 	  	$	236	 	  	$	755	 	  	$	399	 
	 Legal
	  	 	58	 	  	 	77	 	  	 	144	 	  	 	259	 
	 Consulting
	  	 	14	 	  	 	28	 	  	 	36	 	  	 	40	 
	 Environmental and appraisals
	  	 	319	 	  	 	110	 	  	 	370	 	  	 	297	 
	 Repairs and maintenance
	  	 	161	 	  	 	155	 	  	 	407	 	  	 	255	 
	 Ground rents
	  	 	—	 	  	 	167	 	  	 	—	 	  	 	335	 
	 Other
	  	 	170	 	  	 	189	 	  	 	355	 	  	 	345	 
	 	  	$	1,077	 	  	$	962	 	  	$	2,067	 	  	$	1,930	 
	 Recoverable from tenants:
	  				  				  				  			
	 Property taxes and utilities
	  	$	5,884	 	  	$	5,102	 	  	$	10,852	 	  	$	10,624	 
	 Property insurance
	  	 	628	 	  	 	535	 	  	 	1,154	 	  	 	1,056	 
	 Repairs and maintenance
	  	 	676	 	  	 	428	 	  	 	1,179	 	  	 	711	 
	 Property management fees
	  	 	489	 	  	 	337	 	  	 	913	 	  	 	572	 
	 Other
	  	 	44	 	  	 	66	 	  	 	869	 	  	 	417	 
	 	  	$	7,721	 	  	$	6,468	 	  	$	14,967	 	  	$	13,380	 
	 Property operating costs
	  	$	8,798	 	  	$	7,430	 	  	$	17,034	 	  	$	15,310	 


  

	(c)	 General and administrative expenses consist of: 



 

																	
	  	  	Three Months Ended
June 30,	 	  	Six Months Ended
June 30,	 
	  	  	        2019	 	  	        2018	 	  	        2019	 	  	        2018	 
	 Salaries, incentives and benefits
	  	$	4,372	 	  	$	3,622	 	  	$	7,383	 	  	$	8,064	 
	 Audit, legal and consulting
	  	 	1,143	 	  	 	1,090	 	  	 	2,477	 	  	 	1,890	 
	 Trustee/director fees and related expenses
	  	 	357	 	  	 	270	 	  	 	641	 	  	 	573	 
	 Unit-based compensation including distributions and revaluations
	  	 	1,258	 	  	 	632	 	  	 	3,204	 	  	 	1,644	 
	 Other public entity costs
	  	 	746	 	  	 	546	 	  	 	1,190	 	  	 	946	 
	 Office rents including property taxes and common area maintenance costs
	  	 	100	 	  	 	231	 	  	 	181	 	  	 	455	 
	 Other
	  	 	660	 	  	 	756	 	  	 	1,434	 	  	 	1,063	 
	 	  	$	8,636	 	  	$	7,147	 	  	$	16,510	 	  	$	14,635	 



  
 Granite REIT 2019 Second Quarter
Report    23 














	(d)	 Interest expense and other financing costs consist of: 



 

																	
	  	  	Three Months Ended
June 30,	 	  	Six Months Ended
June 30,	 
	  	  	        2019	 	  	        2018	 	  	        2019	 	  	        2018	 
	 Interest and amortized issuance costs relating to debentures and term loans
	  	$	6,878	 	  	$	4,534	 	  	$	13,801	 	  	$	9,122	 
	 Amortization of deferred financing costs and other interest expense and charges
	  	 	546	 	  	 	915	 	  	 	1,035	 	  	 	1,847	 
	 Interest expense related to lease obligations
(note 2(c))
	  	 	374	 	  	 	—	 	  	 	517	 	  	 	—	 
	 	  	$	7,798	 	  	$	5,449	 	  	$	15,353	 	  	$	10,969	 

 (e)     For the six month period ended June 30, 2018, foreign exchange gains (losses)
included an $8.5 million foreign exchange gain realized from the remeasurement of the US dollar proceeds received from the sale of three investment properties in January 2018. 

 

	(f)	 Fair value losses (gains) on financial instruments consist of: 



 

																	
	  	  	Three Months Ended
June 30,	 	 	Six Months Ended
June 30,	 
	  	  	        2019	 	  	        2018	 	 	        2019	 	  	        2018	 
	 Foreign exchange forward contracts, net
	  	$	1,655	 	  	$	(1,438	) 	 	$	1,756	 	  	$	530	 

 (g)     During the three and six month periods ended June 30, 2018, Granite entered into
a settlement agreement related to a land use matter for a property in Ontario, Canada and was awarded a settlement amount of $2.3 million. 
  

	
	 13.  INCOME
TAXES


  

	(a)	 The major components of the income tax expense are: 



 

																	
	  	  	Three Months Ended
June 30,	 	    	Six Months Ended
June 30,	 
	  	  	2019	 	    	2018	 	    	2019	 	    	2018	 
	 Current income tax expense
	  	$	1,678	 	    	$	2,839	 	    	$	3,597	 	    	$	4,832	 
	 Deferred income tax expense
	  	 	11,826	 	    	 	18,096	 	    	 	22,747	 	    	 	26,084	 
	 Income tax expense
	  	$	13,504	 	    	$	20,935	 	    	$	26,344	 	    	$	30,916	 


  
 24    Granite REIT 2019
Second Quarter Report 













 (b)     The effective income tax rate reported in the condensed combined
statements of net income varies from the Canadian statutory rate for the following reasons: 
  

																	
	  	  	Three Months Ended
June 30,	 	  	Six Months Ended
June 30,	 
	  	  	2019	 	    	2018	 	  	2019	 	    	2018	 
	 Income before income taxes
	  	$	112,181	 	    	$	170,144	 	  	$	203,349	 	    	$	252,528	 
	 Expected income taxes at the Canadian statutory tax rate of 26.5% (2018 — 26.5%)
	  	$	29,727	 	    	$	45,088	 	  	$	53,887	 	    	$	66,920	 
	 Income distributed and taxable to unitholders
	  	 	(14,690	) 	    	 	(24,678	) 	  	 	(24,549	) 	    	 	(36,598	) 
	 Net foreign rate differentials
	  	 	(2,157	) 	    	 	(1,638	) 	  	 	(4,064	) 	    	 	(3,025	) 
	 Net change in provisions for uncertain tax positions
	  	 	445	 	    	 	483	 	  	 	808	 	    	 	923	 
	 Net permanent differences
	  	 	156	 	    	 	2,226	 	  	 	170	 	    	 	2,184	 
	 Withholding taxes and other
	  	 	23	 	    	 	(546	) 	  	 	92	 	    	 	512	 
	 Income tax expense
	  	$	13,504	 	    	$	20,935	 	  	$	26,344	 	    	$	30,916	 

  

	
	 14.  DETAILS OF CASH
FLOWS


  

	(a)	 Items not involving operating cash flows are shown in the following table: 



 

																	
	  	  	Three Months Ended
June 30,	 	  	Six Months Ended
June 30,	 
	  	  	2019	 	    	2018	 	  	2019	 	    	2018	 
	 Straight-line rent amortization
	  	$	(1,539	) 	    	$	(814	) 	  	$	(2,688	) 	    	$	(2,729	) 
	 Tenant incentive amortization
	  	 	1,290	 	    	 	1,325	 	  	 	2,596	 	    	 	2,717	 
	 Unit-based compensation expense (note 11(a))
	  	 	1,496	 	    	 	813	 	  	 	3,669	 	    	 	2,023	 
	 Fair value gains on investment properties
	  	 	(69,580	) 	    	 	(127,918	) 	  	 	(119,650	) 	    	 	(160,228	) 
	 Unrealized foreign exchange loss
	  	 	—	 	    	 	6,406	 	  	 	—	 	    	 	—	 
	 Depreciation and amortization
	  	 	219	 	    	 	79	 	  	 	433	 	    	 	158	 
	 Fair value losses (gains) on financial instruments
	  	 	1,655	 	    	 	(1,438	) 	  	 	1,756	 	    	 	530	 
	 Loss on sale of investment properties
	  	 	635	 	    	 	147	 	  	 	1,383	 	    	 	1,234	 
	 Amortization of issuance costs relating to debentures and term loans
	  	 	216	 	    	 	135	 	  	 	433	 	    	 	270	 
	 Amortization of deferred financing costs
	  	 	78	 	    	 	78	 	  	 	156	 	    	 	341	 
	 Deferred income taxes
	  	 	11,826	 	    	 	18,096	 	  	 	22,747	 	    	 	26,084	 
	 Other
	  	 	(50	) 	    	 	(1,294	) 	  	 	(99	) 	    	 	1,248	 
	 	  	$	(53,754	) 	    	$	(104,385	) 	  	$	(89,264	) 	    	$	(128,352	) 


  
 Granite REIT 2019 Second Quarter
Report    25 














	(b)	 Changes in working capital balances are shown in the following table: 



 

																	
	  	  	Three Months Ended
June 30,	 	  	Six Months Ended
June 30,	 
	  	  	2019	 	    	2018	 	  	2019	 	    	2018	 
	 Accounts receivable
	  	$	(130	) 	    	$	3,604	 	  	$	223	 	    	$	(1,897	) 
	 Prepaid expenses and other
	  	 	121	 	    	 	532	 	  	 	385	 	    	 	538	 
	 Accounts payable and accrued liabilities
	  	 	6,912	 	    	 	701	 	  	 	(846	) 	    	 	(2,180	) 
	 Deferred revenue
	  	 	(432	) 	    	 	(1,456	) 	  	 	3,035	 	    	 	4,644	 
	 Restricted cash
	  	 	(5	) 	    	 	(2	) 	  	 	(5	) 	    	 	(4	) 
	 	  	$	6,466	 	    	$	3,379	 	  	$	2,792	 	    	$	1,101	 

  

	(c)	 Non-cash investing and financing activities 



The condensed combined statements of cash flows for the three and six month periods ended June 30, 2019 do not include the right-of-use asset and lease obligation of $20.5 million, respectively, associated with the acquisition of the leasehold interest in two Canadian properties (note 3). The
condensed combined statement of cash flows for the six month period ended June 30, 2019 does not include the issuance and consolidation of stapled units associated with the special distribution in the amount of $41.1 million (note 10). In
addition, during the six month period ended June 30, 2019, 10 thousand stapled units (2018 — 64 thousand stapled units) with a value of $0.6 million (2018 — $3.2 million) were issued under the
Restricted Stapled Unit Plan (note 11(a)) and are not recorded in the condensed combined statements of cash flows. 
  

	(d)	 Cash and cash equivalents consist of: 



 

									
	As at	  	June 30, 2019	 	    	December 31, 2018	 
	 Cash
	  	$	363,607	 	    	$	534,975	 
	 Short-term deposits
	  	 	133,255	 	    	 	123,271	 
	 	  	$	496,862	 	    	$	658,246	 


  
 26    Granite REIT 2019
Second Quarter Report 














	
	 15.  FAIR VALUE AND
RISK MANAGEMENT


  

	(a)	 Fair Value of Financial Instruments 



The following table provides the measurement basis of financial assets and liabilities as at June 30, 2019 and December 31, 2018: 

 

																	
	As at	  	June 30, 2019	 	  	December 31, 2018	 
	  	  	Carrying
Value	 	 	 Fair

Value
	 	  	Carrying
Value	 	 	 Fair

Value
	 
	 Financial assets
	  				 				  				 			
	 Other assets
	  	$	413	(1) 	 	$	413	 	  	$	12,253	(1) 	 	$	12,253	 
	 Other receivable
	  	 	11,325	 	 	 	11,325	 	  	 	—	 	 	 	—	 
	 Accounts receivable
	  	 	3,968	 	 	 	3,968	 	  	 	4,316	 	 	 	4,316	 
	 Prepaid expenses and other
	  	 	—	 	 	 	—	 	  	 	111	(2) 	 	 	111	 
	 Restricted cash
	  	 	475	 	 	 	475	 	  	 	470	 	 	 	470	 
	 Cash and cash equivalents
	  	 	496,862	 	 	 	496,862	 	  	 	658,246	 	 	 	658,246	 
	 	  	$	513,043	 	 	$	513,043	 	  	$	675,396	 	 	$	675,396	 
	 Financial liabilities
	  				 				  				 			
	 Unsecured debentures, net
	  	$	648,119	 	 	$	672,840	 	  	$	647,849	 	 	$	654,365	 
	 Unsecured term loans, net
	  	 	540,480	 	 	 	540,480	 	  	 	550,565	 	 	 	550,565	 
	 Cross currency interest rate swaps
	  	 	63,794	 	 	 	63,794	 	  	 	104,757	 	 	 	104,757	 
	 Accounts payable and accrued liabilities
	  	 	43,656	 	 	 	43,656	 	  	 	41,957	 	 	 	41,957	 
	 Accounts payable and accrued liabilities
	  	 	1,655	(3) 	 	 	1,655	 	  	 	10	(3) 	 	 	10	 
	 Distributions payable
	  	 	11,520	 	 	 	11,520	 	  	 	24,357	 	 	 	24,357	 
	 	  	$	1,309,224	 	 	$	1,333,945	 	  	$	1,369,495	 	 	$	1,376,011	 

  

	(1) 	 	 Long-term receivables included in other assets (note 6). 



	(2) 	 	 Foreign exchange forward contracts included in prepaid expenses. 



	(3) 	 	 Foreign exchange forward contracts included in accounts payable and accrued liabilities. 



The fair values of the Trust’s accounts receivable, restricted cash, cash and cash equivalents, accounts payable and accrued liabilities and
distributions payable approximate their carrying amounts due to the relatively short periods to maturity of these financial instruments. The fair value of the long-term receivable included in other assets approximates its carrying amount as the
receivables bears interest at rates comparable to current market rates. The fair value of the other receivable associated with proceeds from a 2018 property disposal approximates its carrying amount as the amount is revalued at each reporting
period. The fair values of the unsecured debentures are determined using quoted market prices. The fair values of the term loans approximate their carrying amounts as the term loans bear interest at rates comparable to the current market rates and
were recently drawn. The fair values of the cross currency interest rate swaps are determined using market inputs quoted by their counterparties. The fair value of the foreign exchange forward contracts approximate their carrying value as the asset
or liability is revalued at the reporting date. 
 The Trust periodically purchases foreign exchange forward contracts to hedge specific anticipated
foreign currency transactions and to mitigate its foreign exchange exposure on its net cash flows. At June 30, 2019, the Trust held nine outstanding foreign exchange forward contracts (December 31, 2018 — three contracts outstanding). The
foreign exchange contracts are comprised of contracts to purchase US$105.0 million and sell $139.1 million. For the three and six month periods ended June 30, 2019, the Trust recorded a net fair value loss of $1.7 million (2018
— net fair value gain of $1.4 million) and $1.8 million (2018 — $0.5 million), respectively, related to foreign exchange forward contracts (note 12(f)). 

  
 Granite REIT 2019 Second Quarter
Report    27 














	(b)	 Fair Value Hierarchy 



Fair value measurements are based on inputs of observable and unobservable market data that a market participant would use in pricing an asset or
liability. IFRS establishes a fair value hierarchy which is summarized below: 
  

	Level 1:	 Fair value determined using quoted prices in active markets for identical assets or liabilities.



  

	Level 2:	 Fair value determined using significant observable inputs, generally either quoted prices in active markets for
similar assets or liabilities or quoted prices in markets that are not active. 


  

	Level 3:	 Fair value determined using significant unobservable inputs, such as pricing models, discounted cash flows or
similar techniques. 


 The following tables represent information related to the Trust’s assets and liabilities measured or
disclosed at fair value on a recurring and non-recurring basis and the level within the fair value hierarchy in which the fair value measurements fall. 

 

													
	As at June 30, 2019	  	Level 1	 	 	Level 2	 	 	Level 3	 
	 ASSETS AND LIABILITIES MEASURED OR DISCLOSED AT FAIR VALUE
	  				 				 			
	 Assets measured at fair value
	  				 				 			
	 Investment properties
	  	$	—	 	 	$	—	 	 	$	3,799,046	 
	 Assets held for sale
	  	 	—	 	 	 	—	 	 	 	50,461	 
	 Short-term proceeds receivable associated with a property disposal included in other receivable
(note 7)
	  	 	—	 	 	 	—	 	 	 	11,325	 
				
	 Liabilities measured or disclosed at fair value
	  				 				 			
	 Unsecured debentures, net
	  	 	672,840	 	 	 	—	 	 	 	—	 
	 Unsecured term loans, net
	  	 	—	 	 	 	540,480	 	 	 	—	 
	 Cross currency interest rate swaps
	  	 	—	 	 	 	63,794	 	 	 	—	 
	 Foreign exchange forward contracts included in accounts payable
and accrued liabilities
	  	 	—	 	 	 	1,655	 	 	 	—	 
	 Net assets (liabilities) measured or disclosed at fair
value
	  	$	(672,840	) 	 	$	(605,929	) 	 	$	3,860,832	 

  

													
	As at December 31, 2018	  	Level 1	 	 	Level 2	 	 	Level 3	 
	 ASSETS AND LIABILITIES MEASURED OR DISCLOSED AT FAIR VALUE
	  				 				 			
	 Assets measured at fair value
	  				 				 			
	 Investment properties
	  	$	—	 	 	$	—	 	 	$	3,424,978	 
	 Assets held for sale
	  	 	—	 	 	 	—	 	 	 	44,238	 
	 Long-term proceeds receivable associated with a property disposal included in other assets
(note 6)
	  	 	—	 	 	 	—	 	 	 	11,805	 
	 Short-term proceeds receivable associated with a property disposal included in accounts
receivable
	  				 				 	 	231	 
	 Foreign exchange forward contracts included in prepaid expenses and other
	  	 	—	 	 	 	111	 	 	 	—	 
				
	 Liabilities measured or disclosed at fair value
	  				 				 			
	 Unsecured debentures, net
	  	 	654,365	 	 	 	—	 	 	 	—	 
	 Unsecured term loans, net
	  				 	 	550,565	 	 			
	 Cross currency interest rate swaps
	  	 	—	 	 	 	104,757	 	 	 	—	 
	 Foreign exchange forward contracts included in accounts payable
and accrued liabilities
	  	 	—	 	 	 	10	 	 	 	—	 
	 Net assets (liabilities) measured or disclosed at fair
value
	  	$	(654,365	) 	 	$	(655,221	) 	 	$	3,481,252	 


  
 28    Granite REIT 2019
Second Quarter Report 













 For assets and liabilities that are measured at fair value on a recurring basis, the Trust
determines whether transfers between the levels of the fair value hierarchy have occurred by reassessing categorization (based on the lowest level input that is significant to the fair value measurement as a whole) at the end of each reporting
period. For the three and six month periods ended June 30, 2019 and the year ended December 31, 2018, there were no transfers between the levels. 
  

	(c)	 Risk Management 



Foreign exchange risk 
 As at June 30,
2019, the Trust is exposed to foreign exchange risk primarily in respect of movements in the Euro and the US dollar. The Trust is structured such that its foreign operations are primarily conducted by entities with a functional currency which is the
same as the economic environment in which the operations take place. As a result, the net income impact of currency risk associated with financial instruments is limited as its financial assets and liabilities are generally denominated in the
functional currency of the subsidiary that holds the financial instrument. However, the Trust is exposed to foreign currency risk on its net investment in its foreign currency denominated operations and certain Trust level foreign currency
denominated assets and liabilities. At June 30, 2019, the Trust’s foreign currency denominated net assets are $2.8 billion primarily in US dollars and Euros. A 1% change in the US dollar and Euro exchange rates relative to the
Canadian dollar would result in a gain or loss of approximately $14.8 million and $12.5 million, respectively, to comprehensive income. 

  
 Granite REIT 2019 Second Quarter
Report    29 














	
	 16.  COMBINED FINANCIAL
INFORMATION


 The condensed combined financial statements include the financial position and results of operations and cash flows of
each of Granite REIT and Granite GP. Below is a summary of the financial information for each entity along with the elimination entries and other adjustments that aggregate to the condensed combined financial statements: 

 

																	
	Balance Sheet	  	As at June 30, 2019	 
	  	  	Granite REIT	 	  	Granite GP	 	  	Eliminations/
Adjustments	 	 	Granite REIT and
Granite GP
Combined	 
	 ASSETS
	  				  				  				 			
	 Non-current assets:
	  				  				  				 			
	 Investment properties
	  	$	3,799,046	 	  				  				 	$	3,799,046	 
	 Investment in Granite LP(1)
	  	 	—	 	  	 	19	 	  	 	(19	) 	 	 	—	 
	 Other non-current
assets
	  	 	69,116	 	  	 	 	 	  	 	 	 	 	 	69,116	 
		  	 	3,868,162	 	  	 	19	 	  	 	(19	) 	 	 	3,868,162	 
					
	 Current assets:
	  				  				  				 			
	 Assets held for sale
	  	 	50,461	 	  				  				 	 	50,461	 
	 Other current assets
	  	 	18,272	 	  	 	56	 	  				 	 	18,328	 
	 Intercompany receivable(2)
	  	 	—	 	  	 	9,907	 	  	 	(9,907	) 	 	 	—	 
	 Cash and cash equivalents
	  	 	496,628	 	  	 	234	 	  	 	 	 	 	 	496,862	 
	 Total assets
	  	$	4,433,523	 	  	 	10,216	 	  	 	(9,926	) 	 	$	4,433,813	 
	  

LIABILITIES AND EQUITY
	  				  				  				 			
	 Non-current liabilities:
	  				  				  				 			
	 Unsecured debt, net
	  	$	1,188,599	 	  				  				 	$	1,188,599	 
	 Other non-current
liabilities
	  	 	409,515	 	  	 	 	 	  	 	 	 	 	 	409,515	 
		  	 	1,598,114	 	  				  				 	 	1,598,114	 
					
	 Current liabilities:
	  				  				  				 			
	 Intercompany payable(2)
	  	 	9,907	 	  				  	 	(9,907	) 	 	 	—	 
	 Other current liabilities
	  	 	67,767	 	  	 	10,197	 	  	 	 	 	 	 	77,964	 
	 Total liabilities
	  	 	1,675,788	 	  	 	10,197	 	  	 	(9,907	) 	 	 	1,676,078	 
					
	 Equity:
	  				  				  				 			
	 Stapled unitholders’ equity
	  	 	2,756,367	 	  	 	19	 	  				 	 	2,756,386	 
	 Non-controlling
interests
	  	 	1,368	 	  	 	 	 	  	 	(19	) 	 	 	1,349	 
	 Total liabilities and equity
	  	$	4,433,523	 	  	 	10,216	 	  	 	(9,926	) 	 	$	4,433,813	 

  

	(1)	 	 Granite REIT Holdings Limited Partnership (“Granite LP”) is 100% owned by Granite REIT and Granite GP.




	(2) 	 	 Represents employee and trustee/director compensation related amounts which will be reimbursed by Granite LP.




  
 30    Granite REIT 2019
Second Quarter Report 














																	
	Balance Sheet	  	As at December 31, 2018	 
	  	  	Granite REIT	 	  	Granite GP	 	  	Eliminations/
Adjustments	 	 	Granite REIT and
Granite GP
Combined	 
	 ASSETS
	  				  				  				 			
	 Non-current assets:
	  				  				  				 			
	 Investment properties
	  	$	3,424,978	 	  				  				 	$	3,424,978	 
	 Investment in Granite LP(1)
	  	 	—	 	  	 	17	 	  	 	(17	) 	 	 	—	 
	 Other non-current
assets
	  	 	53,785	 	  	 	 	 	  	 	 	 	 	 	53,785	 
		  	 	3,478,763	 	  	 	17	 	  	 	(17	) 	 	 	3,478,763	 
					
	 Current assets:
	  				  				  				 			
	 Assets held for sale
	  	 	44,238	 	  				  				 	 	44,238	 
	 Other current assets
	  	 	7,462	 	  	 	46	 	  				 	 	7,508	 
	 Intercompany receivable(2)
	  	 	—	 	  	 	7,130	 	  	 	(7,130	) 	 	 	—	 
	 Cash and cash equivalents
	  	 	657,432	 	  	 	814	 	  	 	 	 	 	 	658,246	 
	 Total assets
	  	$	4,187,895	 	  	 	8,007	 	  	 	(7,147	) 	 	$	4,188,755	 
	  

LIABILITIES AND EQUITY
	  				  				  				 			
	 Non-current liabilities:
	  				  				  				 			
	 Unsecured debt, net
	  	$	1,198,414	 	  				  				 	$	1,198,414	 
	 Other non-current
liabilities
	  	 	408,722	 	  	 	 	 	  	 	 	 	 	 	408,722	 
		  	 	1,607,136	 	  				  				 	 	1,607,136	 
					
	 Current liabilities:
	  				  				  				 			
	 Intercompany payable(2)
	  	 	7,130	 	  				  	 	(7,130	) 	 	 	—	 
	 Other current liabilities
	  	 	76,644	 	  	 	7,990	 	  	 	 	 	 	 	84,634	 
	 Total liabilities
	  	 	1,690,910	 	  	 	7,990	 	  	 	(7,130	) 	 	 	1,691,770	 
					
	 Equity:
	  				  				  				 			
	 Stapled unitholders’ equity
	  	 	2,495,501	 	  	 	17	 	  				 	 	2,495,518	 
	 Non-controlling
interests
	  	 	1,484	 	  	 	 	 	  	 	(17	) 	 	 	1,467	 
	 Total liabilities and equity
	  	$	4,187,895	 	  	 	8,007	 	  	 	(7,147	) 	 	$	4,188,755	 

  

	(1) 	 	 Granite LP is 100% owned by Granite REIT and Granite GP. 



	(2) 	 	 Represents employee and trustee/director compensation related amounts which will be reimbursed by Granite LP.




  
 Granite REIT 2019 Second Quarter
Report    31 














																	
	Income Statement	  	Three Months Ended June 30, 2019	 
	  	  	Granite REIT	 	 	Granite GP	 	 	 Eliminations/

Adjustments
	 	 	Granite REIT and
Granite GP
Combined	 
	 Revenue
	  	$	67,903	 	 				 				 	$	67,903	 
					
	 General and administrative expenses
	  	 	8,636	 	 				 				 	 	8,636	 
	 Interest expense and other financing costs
	  	 	7,798	 	 				 				 	 	7,798	 
	 Other costs and expenses, net
	  	 	6,578	 	 				 				 	 	6,578	 
	 Share of (income) loss of Granite LP
	  	 	—	 	 	 	(1	) 	 	 	1	 	 	 	—	 
	 Fair value gains on investment properties, net
	  	 	(69,580	) 	 				 				 	 	(69,580	) 
	 Fair value loss on financial instruments
	  	 	1,655	 	 				 				 	 	1,655	 
	 Loss on sale of investment properties
	  	 	635	 	 	 	 	 	 	 	 	 	 	 	635	 
	 Income before income taxes
	  	 	112,181	 	 	 	1	 	 	 	(1	) 	 	 	112,181	 
	 Income tax expense
	  	 	13,504	 	 	 	 	 	 	 	 	 	 	 	13,504	 
	 Net income
	  	 	98,677	 	 	 	1	 	 	 	(1	) 	 	 	98,677	 
	 Less net income attributable
to
non-controlling interests
	  	 	10	 	 	 	 	 	 	 	(1	) 	 	 	9	 
	 Net income attributable to stapled unitholders
	  	$	98,667	 	 	 	1	 	 	 	—	 	 	$	98,668	 
		  				 				 				 			
	Income Statement	  	Three Months Ended June 30, 2018	 
	  	  	Granite REIT	 	 	Granite GP	 	 	Eliminations/
Adjustments	 	 	Granite REIT and
Granite GP
Combined	 
	 Revenue
	  	$	62,140	 	 				 				 	$	62,140	 
					
	 General and administrative expenses
	  	 	7,147	 	 				 				 	 	7,147	 
	 Interest expense and other financing costs
	  	 	5,449	 	 				 				 	 	5,449	 
	 Other costs and expenses, net
	  	 	7,028	 	 				 				 	 	7,028	 
	 Share of (income) loss of Granite LP
	  	 	—	 	 	 	(1	) 	 	 	1	 	 	 	—	 
	 Fair value gains on investment properties, net
	  	 	(127,918	) 	 				 				 	 	(127,918	) 
	 Fair value gains on financial instruments
	  	 	(1,438	) 	 				 				 	 	(1,438	) 
	 Acquisition transaction costs
	  	 	1,581	 	 				 				 	 	1,581	 
	 Loss on sale of investment properties
	  	 	147	 	 	 	 	 	 	 	 	 	 	 	147	 
	 Income before income taxes
	  	 	170,144	 	 	 	1	 	 	 	(1	) 	 	 	170,144	 
	 Income tax expense
	  	 	20,935	 	 	 	 	 	 	 	 	 	 	 	20,935	 
	 Net income
	  	 	149,209	 	 	 	1	 	 	 	(1	) 	 	 	149,209	 
	 Less net income attributable
to
non-controlling interests
	  	 	43	 	 	 	 	 	 	 	(1	) 	 	 	42	 
	 Net income attributable to stapled unitholders
	  	$	149,166	 	 	 	1	 	 	 	—	 	 	$	149,167	 


  
 32    Granite REIT 2019
Second Quarter Report 














																	
	Income Statement	  	Six Months Ended June 30, 2019	 
	  	  	Granite REIT	 	 	Granite GP	 	 	Eliminations/
Adjustments	 	 	Granite REIT and
Granite GP
Combined	 
	 Revenue
	  	$	131,330	 	 				 				 	$	131,330	 
					
	 General and administrative expenses
	  	 	16,510	 	 				 				 	 	16,510	 
	 Interest expense and other financing costs
	  	 	15,353	 	 				 				 	 	15,353	 
	 Other costs and expenses, net
	  	 	12,629	 	 				 				 	 	12,629	 
	 Share of (income) loss of Granite LP
	  	 	—	 	 	 	(2	) 	 	 	2	 	 	 	—	 
	 Fair value gains on investment properties, net
	  	 	(119,650	) 	 				 				 	 	(119,650	) 
	 Fair value loss on financial instruments
	  	 	1,756	 	 				 				 	 	1,756	 
	 Loss on sale of investment properties
	  	 	1,383	 	 	 	 	 	 	 	 	 	 	 	1,383	 
	 Income before income taxes
	  	 	203,349	 	 	 	2	 	 	 	(2	) 	 	 	203,349	 
	 Income tax expense
	  	 	26,344	 	 	 	 	 	 	 	 	 	 	 	26,344	 
	 Net income
	  	 	177,005	 	 	 	2	 	 	 	(2	) 	 	 	177,005	 
	 Less net income attributable
to
non-controlling interests
	  	 	84	 	 	 	 	 	 	 	(2	) 	 	 	82	 
	 Net income attributable to stapled unitholders
	  	$	176,921	 	 	 	2	 	 	 	—	 	 	$	176,923	 
		  				 				 				 			
	Income Statement	  	 	Six Months Ended June 30, 2018	 
	  	  	Granite REIT	 	 	Granite GP	 	 	Eliminations/
Adjustments	 	 	Granite REIT and
Granite GP
Combined	 
	 Revenue
	  	$	123,795	 	 				 				 	$	123,795	 
					
	 General and administrative expenses
	  	 	14,635	 	 				 				 	 	14,635	 
	 Interest expense and other financing costs
	  	 	10,969	 	 				 				 	 	10,969	 
	 Other costs and expenses, net
	  	 	2,388	 	 				 				 	 	2,388	 
	 Share of (income) loss of Granite LP
	  	 	—	 	 	 	(2	) 	 	 	2	 	 	 	—	 
	 Fair value gains on investment properties, net
	  	 	(160,228	) 	 				 				 	 	(160,228	) 
	 Fair value losses on financial instruments
	  	 	530	 	 				 				 	 	530	 
	 Acquisition transaction costs
	  	 	1,739	 	 				 				 	 	1,739	 
	 Loss on sale of investment properties
	  	 	1,234	 	 	 	 	 	 	 	 	 	 	 	1,234	 
	 Income before income taxes
	  	 	252,528	 	 	 	2	 	 	 	(2	) 	 	 	252,528	 
	 Income tax expense
	  	 	30,916	 	 	 	 	 	 	 	 	 	 	 	30,916	 
	 Net income
	  	 	221,612	 	 	 	2	 	 	 	(2	) 	 	 	221,612	 
	 Less net income attributable to
non-controlling interests
	  	 	74	 	 	 	 	 	 	 	(2	) 	 	 	72	 
	 Net income attributable to stapled unitholders
	  	$	221,538	 	 	 	2	 	 	 	—	 	 	$	221,540	 


  
 Granite REIT 2019 Second Quarter
Report    33 














																	
	Statement of Cash Flows	  	Three Months Ended June 30, 2019	 
	  	  	Granite REIT	 	 	Granite GP	 	 	Eliminations/
Adjustments	 	 	Granite REIT and
Granite GP
Combined	 
	 OPERATING ACTIVITIES
	  				 				 				 			
	 Net income
	  	$	98,677	 	 	 	1	 	 	 	(1	) 	 	$	98,677	 
	 Items not involving operating cash flows
	  	 	(53,754	) 	 	 	(1	) 	 	 	1	 	 	 	(53,754	) 
	 Changes in working capital balances
	  	 	6,304	 	 	 	162	 	 				 	 	6,466	 
	 Other operating activities
	  	 	(1,278	) 	 	 	 	 	 	 	 	 	 	 	(1,278	) 
	 Cash provided by operating activities
	  	 	49,949	 	 	 	162	 	 	 	—	 	 	 	50,111	 
					
	 INVESTING ACTIVITIES
	  				 				 				 			
	 Property acquisitions
	  	 	(219,126	) 	 				 				 	 	(219,126	) 
	 Proceeds from disposals, net
	  	 	(635	) 	 				 				 	 	(635	) 
	 Investment property capital additions
	  				 				 				 			
	 — Maintenance or improvements
	  	 	(560	) 	 				 				 	 	(560	) 
	 — Developments or expansions
	  	 	(705	) 	 				 				 	 	(705	) 
	 Acquisition deposits
	  	 	(33,940	) 	 				 				 	 	(33,940	) 
	 Other investing activities
	  	 	16,795	 	 	 	 	 	 	 	 	 	 	 	16,795	 
	 Cash used in investing activities
	  	 	(238,171	) 	 	 	—	 	 	 	—	 	 	 	(238,171	) 
					
	 FINANCING ACTIVITIES
	  				 				 				 			
	 Distributions paid
	  	 	(33,687	) 	 				 				 	 	(33,687	) 
	 Other financing activities
	  	 	219,639	 	 	 	 	 	 	 	 	 	 	 	219,639	 
	 Cash provided by financing activities
	  	 	185,952	 	 	 	—	 	 	 	—	 	 	 	185,952	 
	 Effect of exchange rate changes
	  	 	(2,021	) 	 	 	 	 	 	 	 	 	 	 	(2,021	) 
	 Net increase (decrease) in cash and cash equivalents
during the period
	  	$	(4,291	) 	 	 	162	 	 	 	—	 	 	$	(4,129	) 
		  				 				 				 			
	Statement of Cash Flows	  	Three Months Ended June 30, 2018	 
	  	  	Granite REIT	 	 	Granite GP	 	 	 Eliminations/

Adjustments
	 	 	Granite REIT and
Granite GP
Combined	 
	 OPERATING ACTIVITIES
	  				 				 				 			
	 Net income
	  	$	149,209	 	 	 	1	 	 	 	(1	) 	 	$	149,209	 
	 Items not involving operating cash flows
	  	 	(104,385	) 	 	 	(1	) 	 	 	1	 	 	 	(104,385	) 
	 Changes in working capital balances
	  	 	3,549	 	 	 	(170	) 	 				 	 	3,379	 
	 Other operating activities
	  	 	(3,191	) 	 	 	 	 	 	 	 	 	 	 	(3,191	) 
	 Cash provided by (used in) operating activities
	  	 	45,182	 	 	 	(170	) 	 	 	—	 	 	 	45,012	 
					
	 INVESTING ACTIVITIES
	  				 				 				 			
	 Property acquisitions
	  	 	(327,256	) 	 				 				 	 	(327,256	) 
	 Investment property capital additions
	  				 				 				 			
	 — Maintenance or improvements
	  	 	(6,197	) 	 				 				 	 	(6,197	) 
	 — Developments or expansions
	  	 	(55	) 	 				 				 	 	(55	) 
	 Acquisition deposit
	  	 	(8,308	) 	 				 				 	 	(8,308	) 
	 Other investing activities
	  	 	29,829	 	 	 	 	 	 	 	 	 	 	 	29,829	 
	 Cash used in investing activities
	  	 	(311,987	) 	 	 	—	 	 	 	—	 	 	 	(311,987	) 
					
	 FINANCING ACTIVITIES
	  				 				 				 			
	 Distributions paid
	  	 	(31,181	) 	 				 				 	 	(31,181	) 
	 Other financing activities
	  	 	80,310	 	 	 	 	 	 	 	 	 	 	 	80,310	 
	 Cash provided by financing activities
	  	 	49,129	 	 	 	—	 	 	 	—	 	 	 	49,129	 
	 Effect of exchange rate changes
	  	 	(5,781	) 	 	 	 	 	 	 	 	 	 	 	(5,781	) 
	 Net decrease in cash and cash equivalents
during the period
	  	$	(223,457	) 	 	 	(170	) 	 	 	—	 	 	$	(223,627	) 


  
 34    Granite REIT 2019
Second Quarter Report 














																	
	Statement of Cash Flows	  	Six Months Ended June 30, 2019	 
	  	  	Granite REIT	 	 	Granite GP	 	 	Eliminations/
Adjustments	 	 	Granite REIT and
Granite GP
Combined	 
	 OPERATING ACTIVITIES
	  				 				 				 			
	 Net income
	  	$	177,005	 	 	 	2	 	 	 	(2	) 	 	$	177,005	 
	 Items not involving operating cash flows
	  	 	(89,264	) 	 	 	(2	) 	 	 	2	 	 	 	(89,264	) 
	 Changes in working capital balances
	  	 	3,372	 	 	 	(580	) 	 				 	 	2,792	 
	 Other operating activities
	  	 	1	 	 	 	 	 	 	 	 	 	 	 	1	 
	 Cash provided by (used in) operating activities
	  	 	91,114	 	 	 	(580	) 	 	 	—	 	 	 	90,534	 
					
	 INVESTING ACTIVITIES
	  				 				 				 			
	 Property acquisitions
	  	 	(383,744	) 	 				 				 	 	(383,744	) 
	 Proceeds from disposals, net
	  	 	25,628	 	 				 				 	 	25,628	 
	 Investment property capital additions
	  				 				 				 			
	 — Maintenance or improvements
	  	 	(1,785	) 	 				 				 	 	(1,785	) 
	 — Developments or expansions
	  	 	(4,681	) 	 				 				 	 	(4,681	) 
	 Acquisition deposits
	  	 	(33,940	) 	 				 				 	 	(33,940	) 
	 Other investing activities
	  	 	16,757	 	 	 	 	 	 	 	 	 	 	 	16,757	 
	 Cash used in investing activities
	  	 	(381,765	) 	 	 	—	 	 	 	—	 	 	 	(381,765	) 
					
	 FINANCING ACTIVITIES
	  				 				 				 			
	 Distributions paid
	  	 	(65,623	) 	 				 				 	 	(65,623	) 
	 Other financing activities
	  	 	205,604	 	 	 	 	 	 	 	 	 	 	 	205,604	 
	 Cash provided by financing activities
	  	 	139,981	 	 	 	—	 	 	 	—	 	 	 	139,981	 
	 Effect of exchange rate changes
	  	 	(10,134	) 	 	 	 	 	 	 	 	 	 	 	(10,134	) 
	 Net decrease in cash and cash equivalents
during the period
	  	$	(160,804	) 	 	 	(580	) 	 	 	—	 	 	$	(161,384	) 
		  				 				 				 			
	Statement of Cash Flows	  	Six Months Ended June 30, 2018	 
	  	  	Granite REIT	 	 	Granite GP	 	 	 Eliminations/

Adjustments
	 	 	Granite REIT and
Granite GP
Combined	 
	 OPERATING ACTIVITIES
	  				 				 				 			
	 Net income
	  	$	221,612	 	 	 	2	 	 	 	(2	) 	 	$	221,612	 
	 Items not involving operating cash flows
	  	 	(128,352	) 	 	 	(2	) 	 	 	2	 	 	 	(128,352	) 
	 Changes in working capital balances
	  	 	1,274	 	 	 	(173	) 	 				 	 	1,101	 
	 Other operating activities
	  	 	(11,808	) 	 	 	 	 	 	 	 	 	 	 	(11,808	) 
	 Cash provided by (used in) operating activities
	  	 	82,726	 	 	 	(173	) 	 	 	—	 	 	 	82,553	 
					
	 INVESTING ACTIVITIES
	  				 				 				 			
	 Property acquisitions
	  	 	(399,352	) 	 				 				 	 	(399,352	) 
	 Proceeds from disposals, net
	  	 	356,479	 	 				 				 	 	356,479	 
	 Investment property capital additions
	  				 				 				 			
	 — Maintenance or improvements
	  	 	(15,000	) 	 				 				 	 	(15,000	) 
	 — Developments or expansions
	  	 	(860	) 	 				 				 	 	(860	) 
	 Acquisition deposit
	  	 	(8,308	) 	 				 				 	 	(8,308	) 
	 Other investing activities
	  	 	29,802	 	 	 	 	 	 	 	 	 	 	 	29,802	 
	 Cash used in investing activities
	  	 	(37,239	) 	 	 	—	 	 	 	—	 	 	 	(37,239	) 
					
	 FINANCING ACTIVITIES
	  				 				 				 			
	 Distributions paid
	  	 	(62,841	) 	 				 				 	 	(62,841	) 
	 Other financing activities
	  	 	(5,002	) 	 	 	 	 	 	 	 	 	 	 	(5,002	) 
	 Cash used in financing activities
	  	 	(67,843	) 	 	 	—	 	 	 	—	 	 	 	(67,843	) 
	 Effect of exchange rate changes
	  	 	3,653	 	 	 	 	 	 	 	 	 	 	 	3,653	 
	 Net decrease in cash and cash equivalents
during the period
	  	$	(18,703	) 	 	 	(173	) 	 	 	—	 	 	$	(18,876	) 


  
 Granite REIT 2019 Second Quarter
Report    35 














	
	 17.  COMMITMENTS AND
CONTINGENCIES


 (a)     The Trust is subject to various legal proceedings and claims that arise in the
ordinary course of business. Management evaluates all claims with the advice of legal counsel. Management believes these claims are generally covered by Granite’s insurance policies and that any liability from remaining claims is not probable
to occur and would not have a material adverse effect on the condensed combined financial statements. However, actual outcomes may differ from management’s expectations. 

(b)     At June 30, 2019, the Trust’s contractual commitments related to construction and development projects, and
the purchase of a property in the United States amounted to approximately $300.3 million. 
 (c)     The Trust owns a
property located in Canada for which the tenant has a purchase option to acquire the property from Granite at a stipulated price included in the lease agreement. Subsequent to June 30, 2019, the tenant has exercised its option to acquire the
property (note 18(e)). 
  

	
	 18.  SUBSEQUENT
EVENTS


 (a)     Granite entered into a joint arrangement with a third-party and on July 1, 2019,
completed the purchase of 190.6 acres of development land located in Harris County, Texas for a purchase price of $33.4 million (US$25.4 million). Granite had made an initial capital contribution to the joint arrangement of $33.8 million
(US$25.8 million) to fund the acquisition of the land. 
 (b)     On July 8, 2019, Granite acquired an income-producing
property located in Born, Netherlands at a purchase price of $25.7 million (€17.5 million) which was funded with cash on hand. 

(c)     On July 17, 2019, the Trust declared monthly distributions for July 2019 of $11.5 million (note 10).

 (d)     On July 17, 2019, Granite agreed to acquire an income-producing property located in Horn Lake, Mississippi
for $24.0 million (US$18.5 million). The acquisition is subject to customary closing conditions and is expected to close in the third quarter of 2019. 

(e)     On July 24, 2019, a tenant has exercised its purchase option to acquire one of the Trust’s properties
located in Canada at a stipulated price included in the lease agreement. The property is expected to be sold in the fourth quarter of 2019. 

  
 36    Granite REIT 2019
Second Quarter Report