Document:

SECURITIES PURCHASE AGREEMENT

Exhibit 10.01

SECURITIES PURCHASE AGREEMENT

 

This Securities Purchase Agreement (the “Agreement”) is entered into as of September  6, 2019 (the “Effective Date”) by and between Omnitek Engineering Corp., a California corporation (the “Company”) and G. ON GLOBAL INVESTMENTS S.R.L. , a Societate cu răspundere limitată (LLC) organized under the laws of Romania (the “Purchaser”).

 

RECITALS

 

A.Whereas, subject to the terms and conditions set forth in this Agreement and pursuant to Section 4(a)(2) of the Securities Act (as defined below) and Rule 506 promulgated thereunder, the Company desires to issue and sell and the Investor desires to purchase 3,579,014 shares of Common Stock of the Company, and have the option to purchase an additional 3,579,014 shares of Common Stock of the Company, on the terms set forth herein. 

 

AGREEMENT

 

NOW, THEREFORE, in consideration of the mutual covenants contained in this Agreement, and for other good and valuable consideration the receipt and adequacy of which are hereby acknowledged, the Company and the Purchaser agree as follows:

 

ARTICLE 1.

 

DEFINITIONS

 

1.1Definitions. In addition to the terms defined elsewhere in this Agreement, for all purposes of this Agreement, the following terms shall have the meanings indicated in this Section 1.1: 

 

“Action” means any action, claim, suit, inquiry, investigation, notice of violation, proceeding (including any partial proceeding such as a deposition) or investigation pending or threatened in writing against or affecting the Company or any of its respective properties before or by any court, arbitrator, governmental or administrative agency, regulatory authority (federal, state, county, local or foreign), stock market, stock exchange or trading facility.

 

“Affiliate” means any Person that, directly or indirectly through one or more intermediaries, controls or is controlled by or is under common control with a Person, as such terms are used in and construed under Rule 144.

 

“Business Day” means any day except Saturday, Sunday and any day which is a federal legal holiday in the United States or a day on which banking institutions in the State of California are authorized or required by law or other governmental action to close.

 

“California Courts” means the state and federal courts sitting in the State of California, County of San Diego.

 

“California Time” means Pacific Standard Time.

 

“Closing” means the closing of the purchase and sale of the Shares pursuant to Article 2.

 

“Commission” means the Securities and Exchange Commission.

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Exhibit 10.01

“Block 1 Shares” shall mean the initial block of 3,579,014 shares of Common Stock.

 

“Common Stock” means the common stock of the Company, no par value, and any securities into which such common stock may hereafter be reclassified.

 

“Exchange Act” means the Securities Exchange Act of 1934, as amended.

 

“GAAP” means U.S. generally accepted accounting principles.

 

“Intellectual Property Rights” has the meaning set forth in Section 3.1(m).

 

“Lien” means any lien, charge, encumbrance, security interest, right of first refusal or other restrictions of any kind.

 

“Material Adverse Effect” means any of (i) a material and adverse effect on the legality, validity or enforceability of any Transaction Document, (ii) a material and adverse effect on the results of operations, assets, prospects, business or condition (financial or otherwise) of the Company taken as a whole, or (iii) an adverse impairment to the Company’s ability to perform on a timely basis its obligations under any Transaction Document.

 

“Option Shares” shall mean the additional 3,579,014 shares of Common Stock which the Purchaser shall have the option to purchase.

 

“Person” means an individual or corporation, partnership, trust, incorporated or unincorporated association, joint venture, limited liability company, joint stock company, government (or an agency or subdivision thereof) or other entity of any kind.

 

“Rule 144” means Rule 144 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same effect as such Rule.

 

“SEC Reports” has the meaning set forth in Section 3.1(g).

 

“Securities Act” means the Securities Act of 1933, as amended.

 

“Shares” means the Block 1 Shares and Option Shares, of Common Stock issued or issuable to the Purchasers pursuant to this Agreement.

 

“Trading Day” means a day on which the Common Stock is traded on a Trading Market or is quoted in the over-the-counter market as reported by the OTC Markets Group Inc., (or any similar organization or agency succeeding to its functions of reporting prices); provided, that in the event that the Common Stock is not listed or quoted as set forth in above, , then Trading Day shall mean a Business Day.

 

“Trading Market” means whichever of the OTC Bulletin Board, OTC Markets or Pink Sheets which the Common Stock is listed or quoted for trading on the date in question.

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Exhibit 10.01

ARTICLE 2.

 

PURCHASE AND SALE OF BLOCK 1 SHARES

 

2.1Purchase and Sale of Shares; Purchase Price. Subject to the terms and conditions of this Agreement, at each Closing (as defined below) and upon payment of the Purchase Price as set forth in Section 2.2 below, the Purchaser agrees to purchase and the Company agrees to sell an aggregate of 3,579,014 shares of Common Stock of the Company (the “Block 1 Shares”) at a price of USD $0.1788 per share for an aggregate purchase price of USD $640,000 (the “Purchase Price”). 

 

2.2Payment Terms; Purchase Schedule .  Subject to Section 2.3 below, the sale and purchase of the Block 1 Shares and payment of the Purchase Price for the Block 1 shares shall be made in pursuant to the following schedule, with (a) $75,000 paid at the Initial Closing (i.e. Tranche 1) as set forth below, (b) the balance of the Purchase Price paid at a minimum of $10,000 per month with a total quarterly payment of no less than $90,000, and (c) a final payment of $25,000 on or before April 1, 2021:  

 

	Tranche

	Payment
Date

	Minimum
Payment

	Tranche 
Payment

	Tranche
Shares

	Tranche 1 

	September 30, 2019

	$75,000 

	$75,000 

	419,463 

	Tranche 2

	October 1, 2019

	$10,000 

	$- 

	0 

	Tranche 3

	November 1, 2019

	$10,000 

	$- 

	0 

	Tranche 4

	December 1, 2019

	$70,000 

	$90,000 

	503,356 

	Tranche 5

	January 1, 2020

	$10,000 

	$- 

	0 

	Tranche 6

	February 1, 2020

	$10,000 

	$- 

	0 

	Tranche 7

	March 1, 2020

	$70,000 

	$90,000 

	503,356 

	Tranche 8

	April 1, 2020

	$10,000 

	$- 

	0 

	Tranche 9

	May 1, 2020

	$10,000 

	$- 

	0 

	Tranche 10

	June 1, 2020

	$70,000 

	$90,000 

	503,356 

	Tranche 11

	July 1, 2020

	$10,000 

	$- 

	0 

	Tranche 12

	August 1, 2020

	$10,000 

	$- 

	0 

	Tranche 13

	September 1, 2020

	$70,000 

	$90,000 

	503,356 

	Tranche 14

	October 1, 2020

	$10,000 

	$- 

	0 

	Tranche 15

	November 1, 2020

	$10,000 

	$- 

	0 

	Tranche 16

	December 1, 2020

	$70,000 

	$90,000 

	503,356 

	Tranche 17

	January 1, 2021

	$10,000 

	$- 

	0 

	Tranche 18

	February 1, 2021

	$10,000 

	$- 

	0 

	Tranche 19

	March 1, 2021

	$70,000 

	$90,000 

	503,356 

	Tranche 20

	April 1, 2021

	$25,000 

	$25,000 

	139,821 

	TOTAL

	 

	 

	$640,000 

	3,579,418 

 

2.3Default Election.  The Purchaser shall be in default if Purchaser (a) fails to make any minimum monthly payment, (b) fails to have paid the aggregate Tranche Payment and complete the purchase of shares for Tranche 4, Tranche 7, Tranche 10, Tranche 13, Tranche 16 and Tranche 19) and the final Tranche 20 payment, pursuant to the Payment terms and Payment Schedule set forth in Section 2.2 when due. The Purchaser may pay the Minimum Monthly Payment of $10,000 in such amounts and increments (weekly, bi-weekly or in full) as Purchaser chooses provided that the full amount of such Minimum Monthly Payment has been paid in full by the Payment Date.  In the event of the Purchaser’s default, the Company shall have the option in its sole discretion, to:  

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Exhibit 10.01

(a)Terminate the Purchaser’s right to purchase any further shares under this  Agreement upon fourteen (14) days written notice to the Purchaser, in which event only shares for which payment has been received shall be issued. 

 

(b)Waive the default for any particular tranche, provided payment of the scheduled tranche amount plus a penalty of $0.03 per share is paid within seven (7) days of written notice of default to the Purchaser.  The effect being that the number of shares being purchased shall remain the same but the purchase price for such shares shall be increased by $0.03 cents to $0.2088 per share for all future Tranches. Only shares for which payment has been received shall be issued. 

 

2.4Closing. Subject to the terms and conditions set forth in this Agreement, at the Initial Block 1 Closing, and each subsequent Closing as set forth in Section 2.2 above (each a “Closing”), the Company shall issue and sell to Purchaser the Block 1 Shares against payment of the Purchase Price, as set forth in Section 2.2 above.  The Initial Block 1 Closing of the transactions contemplated by this Agreement (the “Initial Block 1 Closing”) shall take place by the electronic exchange of signatures of this Agreement, the delivery of documents required hereunder, and the payment of the Purchase Price of the shares being purchased, at the offices of the Company, located at 1333 Keystone Way, Suite 101, on or before September 30, 2019 or at such other time as shall be agreed upon by the Company and the Purchaser.  All proceeding to be taken and all documents to be executed and delivered by the parties at the Initial Block 1 Closing shall be deemed to have been taken and executed simultaneously and no proceeding shall be deemed taken or any documents executed or delivered until all have been taken and delivered. 

 

2.5Method of Payment. At each Closing as set forth in Section 2.2, the Purchaser shall deliver or cause to be delivered to the Company the applicable Purchase Price as set forth in Section 2.2, for the Shares being purchased at such Closing, in United States dollars and in immediately available funds, by wire transfer to the account of the Company as follows: 

 

Bank Name:Wells Fargo Bank 

ABA Routing #:121000248 

Account No.:376366100 

SWIFT:WFBIUS6S 

For Credit to:Omnitek Engineering Corp. 

 

2.6Issuance of Block 1 Shares. The purchased Block 1 Shares shall be issued at the Initial Closing (Tranche 1) and Quarterly (Tranche 4, Tranche 7, Tranche 10, Tranche 13, Tranche 16 and Tranche 19) and the final Tranche 20, within ten (10) business days of receipt of payment of full payment of the purchase price, via Book Entry and delivery of evidence of issuance of said shares registered in the Purchaser’s name. 

 

ARTICLE 3.

 

GRANT OF OPTION TO PURCHASE ADDITIONAL SHARES

 

3.1Grant of Option.  Subject to and conditioned upon the payment by the Purchaser of the additional sum of $25,000 (the Option Purchase Price), at the Initial Block 1 Closing set forth in Section 2.2 above, the Company shall grant to the Purchaser, an Option to purchase an additional 3,579,014 restricted shares of common stock (the Option Shares”).  The $25,000 Option Purchase Price is the consideration for the Option and shall be non-refundable and shall not be applied to the purchase of any Block 1 Shares or Option Shares.  

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Exhibit 10.01

3.2Exercise / Expiration of Option.  The Purchaser may exercise the Option within six (6) months of the Initial Block 1 Closing by Paying the Initial Option Tranche 1 Exercise Payment per the Option Schedule below set forth in Section 3.4 below.  If the Purchaser has not exercised and paid the Initial Option Tranche O-1 Exercise Payment within six (6) months of the Initial Block 1 Closing the option to purchase any of the Option Shares shall expire and be terminated. 

 

3.3Cross Default. Any default by the Purchaser related to the purchase of the Block 1 Shares shall result in the termination of the Option to purchase any Option Shares that have not been purchased as of the date of default. 

 

3.4Payment Terms; Option Purchase Schedule.  The Purchase of the Option Shares and payment of the Purchase Price for the Option Shares shall be made in pursuant to the following schedule, with (a) $75,000 paid at the Initial Exercise Date (i.e. Tranche O-1) as set forth below, (b) the balance of the Purchase Price paid at a minimum of $10,000 per month with a total quarterly payment of no less than $90,000, and (c) a final payment of $25,000 (i.e. the Tranche O-20 payment) on or before 19 months after the Initial Option Exercised date:  

 

	Option Tranche

	Option Exercise
Payment Date

	Minimum Option Exercise
Payment

	Option Tranche 
Payment

	Option
Tranche
Shares

	Tranche O-1 

	Initial Exercise Date

	$75,000 

	$75,000 

	419,463   

	Tranche O-2

	1 Month after Exercise Date

	$10,000 

	$- 

	0   

	Tranche O-3

	2 Months after Exercise Date

	$10,000 

	$- 

	0   

	Tranche O-4

	3 Months after Exercise Date

	$70,000 

	$90,000 

	503,356   

	Tranche O-5

	4 Months after Exercise Date

	$10,000 

	$- 

	0   

	Tranche O-6

	5 Months after Exercise Date

	$10,000 

	$- 

	0   

	Tranche O-7

	6 Months after Exercise Date

	$70,000 

	$90,000 

	503,356   

	Tranche O-8

	7 Months after Exercise Date

	$10,000 

	$- 

	0   

	Tranche O-9

	8 Months after Exercise Date

	$10,000 

	$- 

	0   

	Tranche O-10

	9 Months after Exercise Date

	$70,000 

	$90,000 

	503,356   

	Tranche O-11

	10 Months after Exercise Date

	$10,000 

	$- 

	0   

	Tranche O-12

	11 Months after Exercise Date

	$10,000 

	$- 

	0   

	Tranche O-13

	12 Months after Exercise Date

	$70,000 

	$90,000 

	503,356   

	Tranche O-14

	13 Months after Exercise Date

	$10,000 

	$- 

	0   

	Tranche O-15

	14 Months after Exercise Date

	$10,000 

	$- 

	0   

	Tranche O-16

	15 Months after Exercise Date

	$70,000 

	$90,000 

	503,356   

	Tranche O-17

	16 Months after Exercise Date

	$10,000 

	$- 

	0   

	Tranche O-18

	17 Months after Exercise Date

	$10,000 

	$- 

	0   

	Tranche O-19

	18 Months after Exercise Date

	$70,000 

	$90,000 

	503,356   

	Tranche O-20

	19 Months after Exercise Date

	$25,000 

	$25,000 

	139,821   

	TOTAL

	 

	 

	$640,000 

	3,579,418   

 

3.5Option Termination / Default Election.  The Option shall terminate and the Purchaser shall have no further rights to purchase any additional Option Shares if the Purchaser (a) fails to make any monthly Minimum Option Exercise Payment, (b) fails to have paid the aggregate Option Tranche Exercise Payment and complete the purchase of the option shares for Tranche O-4, Tranche O-7, Tranche O-10, Tranche O-13, Tranche O-16 and Tranche O-19) and the final Tranche O-20 Option Exercise Payment, pursuant to the Option Payment terms and Payment Option Schedule set forth in Section 3.4, when due. The Purchaser may pay the monthly Minimum Option Exercise Payment of $10,000 in such  

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Exhibit 10.01

amounts and increments (weekly, bi-weekly or in full) as Purchaser chooses provided that the full amount of such monthly Minimum Option Exercise Payment has been paid in full by the Option Tranche Payment Date.  In the event of the Purchaser’s default, the Company shall have the option in its sole discretion, to: 

 

(a)Terminate the Purchaser’s right to purchase any additional Option Shares under Article 3 of this Agreement upon fourteen (14) days written notice to the Purchaser, in which event only shares for which payment has been received shall be issued. 

 

(b)Waive the default for any particular Option Tranche, provided payment of the scheduled Option Tranche Exercise Payment amount plus a penalty of $0.03 per share is paid within seven (7) days of written notice of default to the Purchaser.  The effect being that the number of shares being purchased shall remain the same but the purchase price for such Option Shares shall be increased by $0.03 cents to $0.2088 per share for all future Option Tranches. Only Option Shares for which payment has been received shall be issued. 

 

3.6Method of Payment for Option Shares. At the exercise of each Option Tranche as set forth in Section 3.4, the Purchaser shall deliver or cause to be delivered to the Company the applicable Option Exercise Payment as set forth in Section 3.5, for the Shares being purchased pursuant to this option, in United States dollars and in immediately available funds, by wire transfer to the account of the Company as follows: 

 

Bank Name:Wells Fargo Bank 

ABA Routing #:121000248 

Account No.:376366100 

SWIFT:WFBIUS6S 

For Credit to:Omnitek Engineering Corp. 

 

2.7Issuance of Block 1 Shares. The purchased Option Shares shall be issued at the Initial Exercise Date (Tranche O-1) and Quarterly (Tranche O-4, Tranche O-7, Tranche O-10, Tranche O-13, Tranche 0-16 and Tranche 0-19) and the final Tranche O-20, within ten (10) business days of receipt of payment of full payment of the exercise price, via Book Entry and delivery of evidence of issuance of said shares registered in the Purchaser’s name. 

 

ARTICLE 4.

 

REPRESENTATIONS AND WARRANTIES

 

4.1Representations and Warranties of the Company. The Company hereby makes the following representations and warranties to each Purchaser: 

 

(a)Organization and Qualification. The Company is duly incorporated or otherwise organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation or organization (as applicable), with the requisite power and authority to own and use its properties and assets and to carry on its business as currently conducted.  The Company is not in violation of any of the provisions of its articles of incorporation or bylaws. The Company is duly qualified to conduct its business and is in good standing as a foreign corporation or other entity in each jurisdiction in which the nature of the business conducted or property owned by it makes such qualification necessary, except where the failure to be so qualified or in good standing, as the case may be, could not, individually or in the aggregate, have or reasonably be expected to result in a Material Adverse Effect. 

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Exhibit 10.01

(b)Authorization; Enforcement. The Company has the requisite corporate power and authority to enter into and to consummate the transactions contemplated by each of this Agreement and otherwise to carry out its obligations thereunder. The execution and delivery of each of this Agreement by the Company and the consummation by it of the transactions contemplated thereby have been duly authorized by all necessary action on the part of the Company and no further action is required by the Company in connection therewith. Each Transaction Document has been (or upon delivery will have been) duly executed by the Company and, when delivered in accordance with the terms hereof, will constitute the valid and binding obligation of the Company enforceable against the Company in accordance with its terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or similar laws relating to, or affecting generally the enforcement of, creditors’ rights and remedies or by other equitable principles of general application. 

 

(c)No Conflicts. The execution, delivery and performance of this Agreement by the Company and the consummation by the Company of the transactions contemplated thereby do not and will not (i) conflict with or violate any provision of the Company’s articles of incorporation or bylaws, or (ii) conflict with, or constitute a default (or an event that with notice or lapse of time or both would become a default) under, or give to others any rights of termination, amendment, acceleration or cancellation (with or without notice, lapse of time or both) of, any agreement, credit facility, debt or other instrument (evidencing a Company debt or otherwise) or other understanding to which the Company is a party or by which any property or asset of the Company is bound or affected, or (iii) result in a violation of any law, rule, regulation, order, judgment, injunction, decree or other restriction of any court or governmental authority to which the Company is subject (including federal and state securities laws and regulations), or by which any property or asset of the Company is bound or affected; except in the case of each of clauses (ii) and (iii), such as could not, individually or in the aggregate, have or reasonably be expected to result in a Material Adverse Effect.  

 

(d)Filings, Consents and Approvals. The Company is not required to obtain any consent, waiver, authorization or order of, give any notice to, or make any filing with, any court or other federal, state, local or other governmental authority or other Person in connection with the execution, delivery and performance by the Company of this Agreement, other than (i) the filing of a Notice of Sale of Securities on Form D with the Commission under Regulation D of the Securities Act, and (ii) filings required by state securities laws. 

 

(e)Issuance of the Shares. The shares being sold pursuant to this Agreement have been duly authorized and, when paid for and issued in accordance with this Agreement, will be duly and validly issued, fully paid and nonassessable, free and clear of all Liens.  

 

(f)Capitalization. The number of shares and type of all authorized, issued and outstanding capital stock of the Company, and all shares of Common Stock reserved for issuance under the Company’s various option and incentive plans, is specified in the SEC Reports.  Except as specified in the SEC Reports, no securities of the Company are entitled to preemptive or similar rights, and no Person has any right of first refusal, preemptive right, right of participation, or any similar right to participate in the transactions contemplated by this Agreement.  Except as specified in the SEC Reports there are no outstanding convertible notes, options, warrants, scrip rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities, rights or obligations convertible into or exchangeable for, or giving any Person any right to subscribe for or acquire, any shares of Common Stock, or contracts, commitments, understandings or arrangements by which the Company is or may become bound to issue  

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Exhibit 10.01

additional shares of Common Stock, or securities or rights convertible or exchangeable into shares of Common Stock.  As of the Effective Date, except with respect to the current outstanding options and convertible note set forth in the SEC Reports, the issue and sale of the Shares will not, immediately or with the passage of time, obligate the Company to issue shares of Common Stock to any Person (other than the Purchaser) and will not result in a right of any holder of Company to adjust the exercise, conversion, exchange or reset price under such securities.

 

(g)SEC Reports; Financial Statements.  The Company has filed all reports required to be filed by it under the Securities Act and the Exchange Act, including pursuant to Section 13(a) or 15(d) thereof, for the twelve months preceding the date hereof (or such shorter period as the Company was required by law to file such reports) (the foregoing materials being collectively referred to herein as the “SEC Reports”, on a timely basis or has timely filed a valid extension of such time of filing and has filed any such SEC Reports prior to the expiration of any such extension. As of their respective dates, the SEC Reports complied in all material respects with the requirements of the Securities Act and the Exchange Act and the rules and regulations of the Commission promulgated thereunder, and none of the SEC Reports, when filed, contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. The financial statements of the Company included in the SEC Reports comply in all material respects with applicable accounting requirements and the rules and regulations of the Commission with respect thereto as in effect at the time of filing. Such financial statements have been prepared in accordance with GAAP applied on a consistent basis during the periods involved, except as may be otherwise specified in such financial statements or the notes thereto, and fairly present in all material respects the financial position of the Company as of and for the dates thereof and the results of operations and cash flows for the periods then ended, subject, in the case of unaudited statements, to normal, immaterial, year-end audit adjustments. 

 

(h)Litigation. There is no Action which (i) adversely affects or challenges the legality, validity or enforceability of this Agreement or the Shares or (ii) except as specifically disclosed in the SEC Reports, could, if there were an unfavorable decision, individually or in the aggregate, have or reasonably be expected to result in a Material Adverse Effect.  Neither the Company, nor any director or officer thereof (in his or her capacity as such), is or has been the subject of any Action involving a claim of violation of or liability under federal or state securities laws or a claim of breach of fiduciary duty, except as specifically disclosed in the SEC Reports. There has not been, and to the knowledge of the Company, there is not pending any investigation by the Commission involving the Company, or any current or former director or officer of the Company (in his or her capacity as such). 

 

(i)Labor Relations. No material labor dispute exists or, to the knowledge of the Company, is imminent with respect to any of the employees of the Company. 

 

(j)Compliance.  The Company is not (i) in default under or in violation of (and no event has occurred that has not been waived that, with notice or lapse of time or both, would result in a default by the Company under), nor has the Company received notice of a claim that it is in default under or that it is in violation of, any indenture, loan or credit agreement or any other agreement or instrument to which it is a party or by which it or any of its properties is bound (whether or not such default or violation has been waived), (ii) is in violation of any order of any court, arbitrator or governmental body, or (iii) is or has been in violation of any statute, rule or regulation of any governmental authority, including without limitation all foreign, federal, state and local laws relating to taxes, environmental protection, occupational health and safety, product  

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Exhibit 10.01

quality and safety and employment and labor matters, except in each case as could not, individually or in the aggregate, have or reasonably be expected to result in a Material Adverse Effect. 

 

(k)Regulatory Permits. The Company possesses all certificates, authorizations and permits issued by the appropriate federal, state, local or foreign regulatory authorities necessary to conduct their respective businesses as described in the SEC Reports, except where the failure to possess such permits could not, individually or in the aggregate, have or reasonably be expected to result in a Material Adverse Effect, and the Company has not received any notice of proceedings relating to the revocation or modification of any such permits. 

 

(l)Title to Assets. The Company does not own any real property.  The Company has good and marketable title in all personal property owned by it that is material to its business, free and clear of all Liens, except for Liens as do not materially affect the value of such property and do not materially interfere with the use made and proposed to be made of such property by the Company. Any real property and facilities held under lease by the Company is held by it under valid, subsisting and enforceable leases of which the Company is in compliance, except as could not, individually or in the aggregate, have or reasonably be expected to result in a Material Adverse Effect. 

 

(m)Patents and Trademarks. The Company has, or has rights to use, all patents, patent applications, trademarks, trademark applications, service marks, trade names, copyrights, licenses and other similar rights that are necessary or material for use in connection with its business as described in the SEC Reports and which the failure to so have could, individually or in the aggregate, have or reasonably be expected to result in a Material Adverse Effect (collectively, the “Intellectual Property Rights”).   The Company has not received any written notice that the Intellectual Property Rights used by the Company violates or infringes upon the rights of any Person. Except as set forth in the SEC Reports, to the knowledge of the Company, all such Intellectual Property Rights are enforceable and there is no existing infringement by another Person of any of the Intellectual Property Rights. 

 

(n)Insurance. The Company is insured by insurers of recognized financial responsibility against such losses and risks and in such amounts as are prudent and customary in the businesses in which the Company is engaged. The Company has no reason to believe that it will not be able to renew its existing insurance coverage as and when such coverage expires or to obtain similar coverage from similar insurers as may be necessary to continue its business on terms consistent with market for the Company’s lines of business. 

 

(o)Transactions With Affiliates and Employees. Except as set forth in or otherwise not required to be disclosed in the SEC Reports, none of the officers or directors of the Company and, to the knowledge of the Company, none of the employees of the Company is presently a party to any transaction with the Company (other than for services as employees, officers and directors), including any contract, agreement or other arrangement providing for the furnishing of services to or by, providing for rental of real or personal property to or from, or otherwise requiring payments to or from any officer, director or such employee or, to the knowledge of the Company, any entity in which any officer, director, or any such employee has a substantial interest or is an officer, director, trustee or partner. 

 

(p)No Broker Fees. No brokerage or finder’s fees or commissions are or will be payable by the Company to any broker, financial advisor or consultant, finder, placement agent,  

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Exhibit 10.01

investment banker, bank or other Person with respect to the transactions contemplated by this Agreement. 

 

(q)No Additional Agreements. The Company does not have any agreement or understanding with the Purchaser with respect to the transactions contemplated by this Agreement other than as specified in this Agreement. 

 

(r)Foreign Corrupt Practices Act.   Neither the Company, nor to the knowledge of the Company, any agent or other person acting on behalf of any of the Company has, directly or indirectly, (i) used any funds, or will use any proceeds from the sale of the Shares, for unlawful contributions, gifts, entertainment or other unlawful expenses related to foreign or domestic political activity, (ii) made any unlawful payment to foreign or domestic government officials or employees or to any foreign or domestic political parties or campaigns from corporate funds, (iii) failed to disclose fully any contribution made by the Company (or made by any Person acting on their behalf of which the Company is aware) which is in violation of law, or (iv) has violated in any material respect any provision of the Foreign Corrupt Practices Act of 1977, as amended, and the rules and regulations thereunder. 

 

(s)OFAC. Neither the Company nor, to the knowledge of the Company, any director, officer, agent, employee, Affiliate or Person acting on behalf of the Company is currently subject to any U.S. sanctions administered by the Office of Foreign Assets Control of the U.S. Treasury Department (“OFAC”); and the Company will not directly or indirectly use the proceeds of the sale of the Shares, or lend, contribute or otherwise make available such proceeds to any Subsidiary, joint venture partner or other Person or entity, towards any sales or operations in Cuba, Iran, Syria, Sudan, Myanmar or any other country sanctioned by OFAC or for the purpose of financing the activities of any Person currently subject to any U.S. sanctions administered by OFAC. 

 

(t)Money Laundering Laws. The operations of the Company is and has been conducted at all times in compliance with the money laundering statutes of applicable jurisdictions, the rules and regulations thereunder and any related or similar rules, regulations or guidelines, issued, administered or enforced by any applicable governmental agency (collectively, the “Money Laundering Laws”) and no action, suit or proceeding by or before any court or governmental agency, authority or body or any arbitrator involving the Company with respect to the Money Laundering Laws is pending or, to the best knowledge of the Company, threatened. 

 

(u)Disclosure. The Company confirms that neither it nor any Person acting on its behalf has provided the Purchaser or its respective agents or counsel with any information that the Company believes constitutes material, non-public information except insofar as the existence and terms of the proposed transactions hereunder may constitute such information. The Company understands and confirms that the Purchaser will rely on the foregoing representations and covenants in effecting transactions in the Shares of the Company. All disclosure provided to the Purchaser regarding the Company, its business and the transactions contemplated hereby, furnished by or on behalf of the Company (including the Company’s representations and warranties set forth in this Agreement) are true and correct and do not contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements made therein, in light of the circumstances under which they were made, not misleading. The press releases disseminated by the Company during the twelve months preceding the date of this Agreement taken as a whole do not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made and when made, not  

Page 10 of 17

Exhibit 10.01

misleading. The Borrower acknowledges and agrees that Purchaser does not makes nor has he made any representations or warranties with respect to the transactions contemplated hereby other than those specifically set forth in Section 32 hereof.

 

(v)Acknowledgment Regarding Purchaser’s Trading Activity.  Anything in this Agreement or elsewhere herein to the contrary notwithstanding, it is understood and acknowledged by the Company that: (i) the Purchaser has not been asked by the Company to agree, nor has the Purchaser agreed, to desist from purchasing or selling, long and/or short, securities of the Company, or “derivative” securities based on securities issued by the Company or to hold the Shares for any specified term; (ii) past or future open market or other transactions by the Purchaser, specifically including, without limitation, Short Sales or “derivative” transactions, before or after the closing of this or future private placement transactions, may negatively impact the market price of the Company’s publicly-traded shares; (iii) the Purchaser, and counter-parties in “derivative” transactions to which the Purchaser is a party, directly or indirectly, may presently have a “short” position in the Common Stock; and (iv) the Purchaser shall not be deemed to have any affiliation with or control over any arm’s length counter-party in any “derivative” transaction. The Company further understands and acknowledges that (y) the Purchaser may engage in hedging activities at various times during the period that the Shares are outstanding, including, without limitation, during the periods that the value of the Shares are being determined, and (z) such hedging activities (if any) could reduce the value of the existing stockholders' equity interests in the Company at and after the time that the hedging activities are being conducted. The Company acknowledges that such aforementioned hedging activities do not constitute a breach of any of this Agreement. 

 

(w)Private Placement.  Assuming the accuracy of the Purchaser’s representations and warranties set forth in Section 3.2, no registration under the Securities Act is required for the offer and sale of the Shares by the Company to the Purchaser as contemplated hereby. The issuance and sale of the Shares hereunder does not contravene the rules and regulations of the Trading Market. 

 

4.2Representations and Warranties of the Purchaser.  The Purchaser hereby, for itself and for no other Purchaser, represents and warrants to the Company as follows: 

 

(a)Organization; Authority. The Purchaser has full power and authority to enter into and to consummate the transactions contemplated by the applicable Transaction Documents and otherwise to carry out its obligations thereunder.   This Agreement when delivered by the Purchaser in accordance with the terms hereof, will constitute the valid and legally binding obligation of the Purchaser, enforceable against the Purchaser in accordance with its terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or similar laws relating to, or affecting generally the enforcement of, creditors’ rights and remedies or by other equitable principles of general application. 

 

(b)Investment Intent. The Purchaser is acquiring the Shares as principal for the Purchaser’s own account for investment purposes only and not with a view to or for distributing or reselling such Shares or any part thereof, without prejudice, however, to the Purchaser’s right at all times to sell or otherwise dispose of all or any part of such Shares in compliance with applicable federal and state securities laws. Subject to the immediately preceding sentence, nothing contained herein shall be deemed a representation or warranty by the Purchaser to hold the Shares for any period of time.  The Purchaser is acquiring the Shares hereunder in the  

Page 11 of 17

Exhibit 10.01

ordinary course of its business.  The Purchaser does not have any agreement or understanding, directly or indirectly, with any Person to distribute any of the Shares.

 

(c)Accredited Purchaser Status.  At the time the Purchaser was offered the Shares, and at the Effective Date, the Purchaser was, and at the Initial Closing and each subsequent closing, will be, an “Accredited Purchaser” as defined in Rule 501(a) under the Securities Act.  The Purchaser is not a registered broker-dealer under Section 15 of the Exchange Act. 

 

(d)General Solicitation.  The Purchaser is not purchasing the Shares as a result of any advertisement, article, notice or other communication regarding the Shares published in any newspaper, magazine or similar media or broadcast over television or radio or presented at any seminar or any other general solicitation or general advertisement. 

 

(e)Access to Information.  The Purchaser acknowledges that it has reviewed the Company’s SEC Reports and has been afforded (i) the opportunity to ask such questions as it has deemed necessary of, and to receive answers from, representatives of the Company concerning the terms and conditions of the offering of the Shares and the merits and risks of investing in the Shares; (ii) access to information about the Company and its financial condition, results of operations, business, properties, management and prospects sufficient to enable the Purchaser to evaluate its investment; and (iii) the opportunity to obtain such additional information that the Company possesses or can acquire without unreasonable effort or expense that is necessary to make an informed investment decision with respect to the investment.  

 

(f)Restricted Securities.  The Purchaser understands that the Shares have not been, and will not be registered under the Securities Act.  Unless registered the Purchaser may only sell or transfer the Shares pursuant to a specific exemption from the registration provisions of the Securities Act which depends upon, among other things, the bona fide nature of the investment intent and the accuracy of the Purchaser’s representations as expressed herein.  The Purchaser understands that the Shares are and shall be “Restricted Securities” under applicable U.S. federal and state securities laws and that, pursuant to these laws, the Purchaser must hold the Shares indefinitely unless an exemption from such registration and qualification requirements is available.  The Purchaser further acknowledges that if an exemption from registration or qualification is available, it may be conditioned on various requirements including, but not limited to, the time and manner of sale, the holding period for the Shares, and on requirements relating to the Company which are outside of the Purchaser’s control, and which the Company is under no obligation and may not be able to satisfy. 

 

(g)Independent Investment Decision.  The Purchaser has independently evaluated the merits of its decision to purchase the Shares pursuant to this Agreement, and such Purchaser confirms that it has not relied on the advice of any other Purchaser’s business and/or legal counsel in making such decision.  The Purchaser has not relied on the business or legal advice of the Company or any of its officers, directors, agents, counsel or Affiliates in making its investment decision hereunder, and confirms that none of such Persons has made any representations or warranties to the Purchaser in connection with the transactions contemplated by this Agreement. 

 

 

ARTICLE 5.

 

OTHER AGREEMENTS OF THE PARTIES

 

5.1Other Agreements. 

Page 12 of 17

Exhibit 10.01

(a)The Shares may only be disposed of in compliance with state and federal securities laws. In connection with any transfer of any Shares the Company may require the transferor thereof to provide to the Company an opinion of counsel selected by the transferor, the form and substance of which opinion shall be reasonably satisfactory to the Company, to the effect that such transfer does not require registration of such transferred Shares under the Securities Act. 

 

(b)Shares shall be issued via Book Entry. Any physical certificates evidencing any Shares will contain the following legend: 

 

NEITHER THESE SECURITIES NOR THE SECURITIES ISSUABLE UPON EXERCISE OF THESE SECURITIES HAVE BEEN REGISTEREDWITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY. 

 

ARTICLE 6.

 

CONDITIONS PRECEDENT TO CLOSING

 

6.1Conditions Precedent to the Obligations of the Purchaser to Purchase Shares. The obligation of the Purchaser to acquire the Shares at the Initial Block 1 Closing and each subsequent closing is subject to the satisfaction or waiver by such Purchaser, at or before the Closing, of each of the following conditions: 

 

(a)Representations and Warranties. The representations and warranties of the Company contained herein shall be true and correct in all material respects as of the date when made and as of the Closing as though made on and as of such date; 

 

(b)Performance. The Company shall have performed, satisfied and complied in all material respects with all covenants, agreements and conditions required by this Agreement to be performed, satisfied or complied with by it at or prior to the Closing; 

 

(c)No Injunction. No statute, rule, regulation, executive order, decree, ruling or injunction shall have been enacted, entered, promulgated or endorsed by any court or governmental authority of competent jurisdiction that prohibits the consummation of any of the transactions contemplated by this Agreement; 

 

(d)No Suspensions of Trading in Common Stock; Listing. Trading in the Common Stock shall not have been suspended by the Commission or any Trading Market (except for any suspensions of trading of not more than one Trading Day solely to permit dissemination of  

Page 13 of 17

Exhibit 10.01

material information regarding the Company) at any time since the date of execution of this Agreement, and the Common Stock shall have been at all times since such date listed or quoted for trading on a Trading Market;

 

(e)Termination. This Agreement shall not have been terminated as to such Purchaser in accordance with Section 7.5. 

 

6.2Conditions Precedent to the Obligations of the Company to sell Shares. The obligation of the Company to sell the Shares at the Initial Closing and each subsequent closing is subject to the satisfaction or waiver by the Company, at or before the Closing, of each of the following conditions: 

 

(a)Representations and Warranties. The representations and warranties of the Purchaser contained herein shall be true and correct in all material respects as of the date when made and as of the Closing Date as though made on and as of such date; 

 

(b)Performance.  The Purchaser shall have performed, satisfied and complied in all material respects with all covenants, agreements and conditions required by this Agreement to be performed, satisfied or complied with by such Purchaser at or prior to the Closing; 

 

(c)No Injunction. No statute, rule, regulation, executive order, decree, ruling or injunction shall have been enacted, entered, promulgated or endorsed by any court or governmental authority of competent jurisdiction that prohibits the consummation of any of the transactions contemplated by this Agreement; 

 

(d)Purchaser Deliverables. The Purchaser shall have paid in full, the Purchase Price for each full tranche of Shares pursuant to and in accordance with Section 2.2; and 

 

(e)Termination. This Agreement shall not have been terminated as to such Purchaser in accordance with Section 7.5. 

 

ARTICLE 1.

 

MISCELLANEOUS

 

7.1Fees and Expenses. Each party shall pay the fees and expenses of its advisers, counsel, accountants and other experts, if any, and all other expenses incurred by such party incident to the negotiation, preparation, execution, delivery and performance of this Agreement.  

 

7.2Entire Agreement. This Agreement, together with the exhibits and schedules thereto, contain the entire understanding of the parties with respect to the subject matter hereof and supersede all prior agreements, understandings, discussions and representations, oral or written, with respect to such matters, which the parties acknowledge have been merged into such documents, exhibits and schedules. 

 

7.3Notices.  Any notice or other communication required shall be in writing addressed to the respective party at the addresses set forth below or such other address as such party may, by written notice received by the other parties, have designated as its address for such purpose. Notice sent by overnight courier service or U.S. mail and shall be deemed to have been given: (a) if delivered in person, when delivered; (b) if sent by facsimile or electronic mail, on the day of confirmation of receipt by the recipient; (c) if delivered by overnight courier, one (1) Business Day after delivery to the courier properly addressed; or (d) if delivered by U.S. mail, three (3) Business Days after deposit in the U.S . Mail with  

Page 14 of 17

Exhibit 10.01

postage prepaid and properly addressed. Any party may change its notice address by written notice to the other.

 

If to the Company, addressed to:

Omnitek Engineering Corp.

Attn:  Werner Funk

1333 Keystone Way, Suite 101

Vista, CA 92081

Facsimile: (760) 591-0880 

E-mail: werner@omnitekcorp.com 

 

If to the Purchaser, addressed to:

G. ON GLOBAL INVESTMENTS S.R.L. 

Att.: Octav Ivanescu

1 Ancuta Baneasa Street, Room 4, Level 1

Bucarest Sector 2, 020323 - Romania   

E-mail: octav.ivanescu@euro.ro

For the purposed of this Agreement, “Business Day” means any day that is not a Saturday, a Sunday or a holiday on which commercial banks in San Diego, California are authorized or required by law to close.

 

7.4Amendments; Waivers; No Additional Consideration.  No provision of this Agreement may be waived or amended except in a written instrument signed by the Company and the Purchaser. No waiver of any default with respect to any provision, condition or requirement of this Agreement shall be deemed to be a continuing waiver in the future or a waiver of any subsequent default or a waiver of any other provision, condition or requirement hereof, nor shall any delay or omission of either party to exercise any right hereunder in any manner impair the exercise of any such right. 

 

7.5Termination. This Agreement may be terminated prior to Closing: 

 

(a)by written agreement of the Purchaser and the Company; and 

 

(b)by the Company or the Purchaser upon written notice to the other if the Initial Block 1 Closing shall not have taken place by 5:30 p.m. Pacific Standard time on September 30, 2019, (the “Outside Date”); provided, that the right to terminate this Agreement under this Section 7.5(b) shall not be available to any Person whose failure to comply with its obligations under this Agreement has been the cause of or resulted in the failure of the Closing to occur on or before such time. 

 

(c)Upon a termination in accordance with this Section 6.5, the Company and the Purchaser shall not have any further obligation or liability (including as arising from such termination) to the other under this Agreement as a result therefrom. 

 

7.6Construction. The headings herein are for convenience only, do not constitute a part of this Agreement and shall not be deemed to limit or affect any of the provisions hereof. The language used in this Agreement will be deemed to be the language chosen by the parties to express their mutual intent, and no rules of strict construction will be applied against any party. This Agreement shall be construed as if drafted jointly by the parties, and no presumption or burden of proof shall arise favoring or disfavoring any party by virtue of the authorship of any provisions of this Agreement or any of this Agreement. 

Page 15 of 17

Exhibit 10.01

7.7Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties and their successors and permitted assigns. Neither the Company nor the Purchaser may  assign this Agreement or any rights or obligations hereunder without the prior written consent of the other. 

 

7.8No Third-Party Beneficiaries. This Agreement is intended for the benefit of the parties hereto and their respective successors and permitted assigns and is not for the benefit of, nor may any provision hereof be enforced by, any other Person. 

 

7.9Governing Law; Venue.  This Agreement is being executed and delivered, and is intended to be performed, in the State of California, and to the extent permitted by law, the execution, validity, construction, and performance of this Agreement shall be construed and enforced in accordance with the laws of the State of California without giving effect to conflict of law principles.  This Agreement shall be deemed made and entered into in San Diego County, State of California and venue for any Proceeding as defined below, in connection with this Agreement shall be in San Diego County, California. 

 

7.10Waiver of Jury Trial.  To the fullest extent allowed by applicable law, the Parties hereto hereby voluntarily and irrevocably waives trial by jury in any Proceeding brought in connection with this Agreement, any of the related agreements and documents, or any of the transactions contemplated hereby or thereby. For purposes of this Agreement, “Proceeding” includes any threatened, pending, or completed action, suit, arbitration, alternate dispute resolution mechanism, investigation, inquiry, administrative hearing, or any other actual, threatened, or completed proceeding, whether brought by or in the right of any party or otherwise and whether civil, criminal, administrative, or investigative, in which a Party was, is, or will be involved as a party or otherwise. 

 

7.11Survival. The representations, warranties, agreements and covenants contained herein shall survive the Closing and the delivery of the Shares. 

 

7.12Severability. If any provision of this Agreement is held to be invalid or unenforceable in any respect, the validity and enforceability of the remaining terms and provisions of this Agreement shall not in any way be affected or impaired thereby and the parties will attempt to agree upon a valid and enforceable provision that is a reasonable substitute therefor, and upon so agreeing, shall incorporate such substitute provision in this Agreement. 

 

7.13Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. Delivery of an executed counterpart of a signature page to this Agreement by facsimile, portable document format (.pdf), DocuSign or other electronic transmission shall be equally as effective as delivery of a manually executed counterpart of this Agreement. 

Page 16 of 17

Exhibit 10.01

IN WITNESS WHEREOF, the parties hereto have caused this Securities Purchase Agreement to be duly executed by their respective authorized signatories as of the date first indicated above.

 

THE COMPANY 

 

Omnitek Engineering Corp.

 

 

/s/  Werner Funk  

_________________________________________________ 

By: Werner Funk 

Its:  President and CEO 

 

 

THE PURCHASER

 

G. ON GLOBAL INVESTMENTS S.R.L. 

 

 

/s/ Octav Ivanescu_________________________________________________ 

By:  Octav Ivanescu 

Title: Manager 

Page 17 of 17EX-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

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