EXHIBIT 3

MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL POSITION

TABLE OF CONTENTS

Basis of Presentation	4
Financial and Operating Highlights	5
Business Overview and Strategic Outlook	7
Significant Matters including COVID-19 Pandemic	8
Results of Operations	15
Investment Properties	32
Liquidity and Capital Resources	43
Commitments, Contractual Obligations, Contingencies and Off-Balance Sheet Arrangements	52

Related Party Transactions	53
Non-IFRS Performance Measures	53
Significant Accounting Estimates	56
New Accounting Pronouncements and Developments	58
Internal Controls over Financial Reporting	58
Risks and Uncertainties	59
Quarterly Financial Data	60
Forward-Looking Statements	61

BASIS OF PRESENTATION

Management’s Discussion and Analysis of Results of Operations and Financial Position (“MD&A”) of Granite Real Estate Investment Trust (“Granite REIT”) and Granite REIT Inc. (“Granite GP”) summarizes the significant factors affecting the combined operating results, financial condition, liquidity and cash flows of Granite REIT, Granite GP and their subsidiaries (collectively “Granite” or the “Trust”) for the year ended December 31, 2020. Unless otherwise noted, all amounts are in millions of Canadian dollars. This MD&A should be read in conjunction with the accompanying audited combined financial statements for the year ended December 31, 2020 prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board. The MD&A was prepared as at March 3, 2021 and its contents were approved by the Board of Trustees of Granite REIT and Board of Directors of Granite GP on this date. Additional information relating to Granite, including the Annual Report and Annual Information Form (“AIF”) for fiscal 2020 and dated March 3, 2021, can be obtained from the Trust’s website at www.granitereit.com, on SEDAR at www.sedar.com and on EDGAR at www.sec.gov.

In addition to using financial measures determined in accordance with IFRS, Granite also uses certain non-IFRS measures in managing its business to measure financial and operating performance as well as for capital allocation decisions and valuation purposes. Granite believes that providing these measures on a supplemental basis to the IFRS amounts is helpful to investors in assessing the overall performance of Granite’s business. These non-IFRS measures include net operating income before lease termination and close-out fees, straight-line rent and tenant incentive amortization (“NOI — cash basis”), same property NOI — cash basis, constant currency same property NOI, funds from operations (“FFO”), adjusted funds from operations (“AFFO”), FFO payout ratio, AFFO payout ratio, leverage ratio, interest coverage ratio, net leverage ratio, indebtedness ratio, adjusted earnings before interest, income taxes, depreciation and amortization (“Adjusted EBITDA”), unencumbered asset coverage ratio and any related per unit amounts. Readers are cautioned that these measures do not have standardized meanings prescribed under IFRS and, therefore, should not be construed as alternatives to net income, cash

4    Granite REIT 2020

provided by operating activities or any other measure calculated in accordance with IFRS. Additionally, because these terms do not have standardized meanings prescribed by IFRS, they may not be comparable to similarly titled measures presented by other reporting issuers. Refer to “NON-IFRS PERFORMANCE MEASURES” for definitions and reconciliations of non-IFRS measures to IFRS financial measures.

FINANCIAL AND OPERATING HIGHLIGHTS

	Three Months Ended December 31,				Years Ended December 31,
(in millions, except as noted)	2020		2019		2020		2019
Operating highlights
Revenue	$	93.2	$	73.6	$	340.2	$	273.7
NOI		77.5		63.9		293.0		238.3
NOI — cash basis(1)		76.3		63.8		289.5		237.4
Net income attributable to stapled unitholders		167.6		90.6		429.8		382.1
FFO(1)		59.6		47.9		225.4		177.5
AFFO(1)(2)		56.1		46.2		215.7		172.7
Cash flows provided from operating activities		58.4		50.1		244.3		183.4
Monthly distributions paid		42.9		36.7		163.1		136.9
Special distribution paid		—		—		—		13.7
FFO payout ratio(1)(3)		74%		80%		73%		79%
AFFO payout ratio(1)(2)(3)		79%		83%		77%		81%
Per unit amounts
Diluted FFO(1)	$	1.00	$	0.91	$	3.98	$	3.62
Diluted AFFO(1)(2)	$	0.94	$	0.88	$	3.81	$	3.52
Monthly distributions paid	$	0.73	$	0.70	$	2.90	$	2.80
Special distribution paid		—		—		—	$	0.30
Diluted weighted average number of units		59.5		52.6		56.7		49.0

As at December 31	2020		2019
Financial highlights
Investment properties — fair value		$5,855.6		$4,457.9
Cash and cash equivalents		831.3		298.7
Total debt(4)		2,297.5		1,250.3
Trading price per unit (TSX: GRT.UN)		$   77.90		$   65.98
Debt metrics, ratings and outlook
Net leverage ratio(1)		25%		21%
Interest coverage ratio(1)		7.9x		10.1x
Indebtedness ratio (total debt to adjusted EBITDA)(1)		8.7x		6.1x
Weighted average cost of debt(5)		2.21%		1.83%
Weighted average debt term-to-maturity, in years(5)		5.6		4.4
DBRS rating and outlook		BBB stable		BBB stable
Moody’s rating and outlook		Baa2 stable		Baa2 stable

Granite REIT 2020    5

As at December 31	2020		2019
Property metrics
Number of investment properties		115		91
Income-producing properties		108		85
Properties under development		3		3
Land held for development		4		3
Gross leasable area (“GLA”), square feet		49.5		40.0
Occupancy, by GLA		99.6%		99.0%
Magna as a percentage of annualized revenue(6)		36%		42%
Magna as a percentage of GLA		27%		35%
Weighted average lease term in years, by GLA		6.3		6.5
Overall capitalization rate(7)		5.6%		6.1%

⁽¹⁾ For definitions of Granite’s non-IFRS measures, refer to the section “NON-IFRS PERFORMANCE MEASURES”.

⁽²⁾  In the current period, AFFO was calculated by deducting maintenance or improvement capital expenditures, leasing commissions and tenant allowances incurred whereas in prior year periods AFFO was calculated by deducting maintenance or improvement capital expenditures, leasing commissions and tenant allowances paid. The AFFO metrics in the comparative period have been updated to conform to the current period’s presentation. AFFO, diluted AFFO per unit and AFFO payout ratio for the quarter ended December 31, 2019 were previously reported as $46.7 million, $0.89 per unit and 82%, respectively. AFFO as well as basic and diluted AFFO per unit and AFFO payout ratio for the year ended December 31, 2019 were previously reported as $172.8 million, $3.53 per unit and 81%, respectively. Both methods of calculation are in accordance with the REALPAC White Paper (see “NON-IFRS PERFORMANCE MEASURES”).

⁽³⁾ The FFO and AFFO payout ratios are calculated as monthly distributions, which exclude the special distribution declared to unitholders, divided by FFO and AFFO, respectively, in a period.

⁽⁴⁾ Total debt includes lease obligations recognized under IFRS 16, Leases.

⁽⁵⁾ Excludes lease obligations recognized under IFRS 16, Leases noted above.

⁽⁶⁾ Annualized revenue for each period presented is calculated as rental revenue excluding tenant recoveries, recognized in accordance with IFRS, in the reported month multiplied by 12 months.

⁽⁷⁾ Refer to “Valuation Metrics by Investment Property Asset Category” in the “Investment Properties” section.

6    Granite REIT 2020

BUSINESS OVERVIEW AND STRATEGIC OUTLOOK

Business Overview

Granite is a Canadian-based real estate investment trust (“REIT”) engaged in the acquisition, development, ownership and management of logistics, warehouse and industrial properties in North America and Europe. As at March 3, 2021, Granite owns 114 investment properties in seven countries having approximately 49.4 million square feet of gross leasable area. Granite has a highly-integrated team of 53 real estate professionals with extensive experience in operations, leasing, development, investment and asset management located at its head office in Toronto, Canada and regional offices in Dallas, U.S.A; Vienna, Austria; and Amsterdam, Netherlands.

Granite’s investment properties consist of income-producing properties, properties under development and land held for development (see “INVESTMENT PROPERTIES”). The income-producing properties consist primarily of logistics, e-commerce and distribution warehouse facilities, light industrial properties and heavy industrial manufacturing facilities. Lease payments are primarily denominated in three currencies: the Canadian dollar (“$”), the Euro (“€”) and the US dollar (“US$”). Granite’s investment properties by geographic location, property count and square footage as at March 3, 2021 are summarized below:

Investment Properties Summary⁽¹⁾

Seven countries/114 properties/49.4 million square feet

⁽¹⁾ Reflects the disposition of the property in Redditch, United Kingdom subsequent to December 31, 2020.

Strategic Outlook

Management continues to identify and pursue value creation and investment opportunities that management believes will generate superior long-term total returns for unitholders.

Granite’s long-term strategy is to continue to build an institutional quality and globally diversified industrial real estate business; to grow and diversify its asset base through acquisitions, development, re-development and dispositions; to optimize its balance sheet; and to reduce its exposure to its largest tenant, Magna International Inc. and its operating subsidiaries (collectively, “Magna”) and the special purpose properties (see “INVESTMENT PROPERTIES”).

Granite REIT 2020    7

Granite has positioned itself financially to execute on its strategic plan including to capitalize on a strong pipeline of acquisition and development opportunities within its targeted geographic footprint.

As Granite looks to 2021, its priorities are set out below:

• Continue to grow in its target markets in North America and Europe primarily through property and portfolio acquisitions as well as through the development of modern logistics and e-commerce assets and selective joint venture arrangements;

• Grow net asset value as well as FFO and AFFO per unit through active asset management;

• Pursue development and expansion opportunities within the existing portfolio;

• Maintain conservative capital ratios providing balance sheet flexibility and liquidity;

• Continue to expand Granite’s global platform;

• Further integrate Granite’s ESG principles into investment and management processes and publish Granite’s inaugural annual Corporate Responsibility Report; and

• Implement a safe return-to-workplace protocol for employees when permitted by local public health authorities in our office jurisdictions.

SIGNIFICANT MATTERS

COVID-19 Pandemic

Granite’s portfolio is well positioned to deliver both cash flow stability and growth as well as long-term value for unitholders. Throughout 2020 and into 2021, amidst the novel coronavirus (“COVID-19”) pandemic, Granite has continued to achieve net asset value appreciation and stable net operating income growth, while executing on its strategic initiatives. Although the full impact of the COVID-19 pandemic continues to be difficult to predict, Granite believes that its portfolio and strong liquidity position will allow it to weather the on-going impact of COVID-19.

Granite’s tenant base is comprised of generally high-quality credit companies with 58% of total annualized revenue represented by Granite’s top ten tenants (see “INVESTMENT PROPERTIES — Leasing Profile-Other Tenants” for a summary of Granite’s top ten tenants). COVID-19 has had, and will continue to have, a varied impact on Granite’s tenants depending on their specific businesses. Certain tenants have seen increased activity during this COVID-19 period while other tenants slowed down or shut down operations temporarily in the earlier months of the COVID-19 pandemic. It is difficult to predict at this time what continued impact COVID-19, including further waves of new infections in the markets where Granite operates that have led to targeted public health restrictions and reinstated emergency measures, will have on the businesses of Granite’s tenants and the resulting direct impact on Granite’s operations.

During the year ended December 31, 2020, there has not been a significant impact on Granite’s operations, assets or liabilities as a result of COVID-19. Granite has received 100% of 2020 rents due, and 100% and 99.9%, respectively, of January and February 2021 rents to date. Granite has not recognized any provisions for uncollected rent at this time as all outstanding rental income has been received. Granite reviewed its future cash flow projections and the valuation of its properties considering the impacts of the COVID-19 pandemic during the year ended December 31, 2020 and Granite does not expect, at this time, that COVID-19 will have a significant impact to the fair value of its investment property portfolio. In addition, there have not been any significant fair value losses on investment properties recorded in the year ended December 31, 2020.

8    Granite REIT 2020

Requests for prior rent deferrals from tenants were reviewed by management on a case by case basis. For each request, management reviewed tenant financial information and credit, assessed the impact of COVID-19 on the tenant’s operations and considered lease terms and local legislation, among other factors. Granite will continue to monitor its portfolio and dialogue with its tenants, where applicable, to understand the ongoing impact of COVID-19 on its tenants’ operations. The dynamic nature of the situation, which continues to evolve day-to-day, makes the longer-term financial impacts on Granite’s operations difficult to predict.

From a liquidity perspective, as at the date of this MD&A, March 3, 2021, Granite has total liquidity of approximately $1.1 billion, including its fully undrawn operating facility which is sufficient to meet its current committed acquisitions, development and construction projects. Subsequent to year end, Granite redeemed in full the outstanding $250.0 million aggregate principal amount of the 2021 Debentures, therefore Granite’s nearest debt maturity of $400.0 million does not occur until 2023 and Granite’s investment property portfolio of approximately $5.9 billion remains fully unencumbered. Granite believes it is well-positioned to weather any short-term negative impacts on its business; however, Granite will continue to evaluate and monitor its liquidity as the situation prolongs.

From a leasing perspective, as at the date of this MD&A, March 3, 2021, Granite has renewed 81% of its 2021 lease maturities and has 0.4 million square feet outstanding representing less than 1% of its total portfolio. Granite does not believe that the impact of COVID-19 will materially affect overall leasing activity for 2021, including its impact on market rents, tenant demand for space, tenant allowances or incentives and lease terms.

With respect to Granite’s outstanding development projects, most have not been materially impacted by COVID-19. Granite’s development project in Plainfield, Indiana was completed and leased for an initial 10-year term during the second quarter of 2020 and the development of Granite’s recently acquired Bleiswijk, Netherlands property was completed in the third quarter of 2020. Granite’s development project in Houston, Texas remains in the early stages with site servicing near completion and Granite expects to commence vertical construction in the second half of 2021. With respect to the development project in Altbach, Germany, late in the fourth quarter of 2020, Granite signed a contract to begin the construction of the distribution/light industrial facility. Granite expects construction work to begin in the first quarter of 2021 and is currently engaged in pre-leasing activity. In regards to the acquired land in Fort Worth, Texas, Granite has commenced the early stages of development with permitting and design underway and expects no delays or disruptions at this time due to COVID-19. Despite limited disruption thus far as a result of COVID-19, the active development projects in Altbach, Germany, Houston, Texas and Fort Worth, Texas may be impacted by temporary delays due to work suspensions, labour shortages and delays in supply chains, all of which may impact timing of construction spending and expected completion dates. Further, due to market demand and other macro-economic factors, Granite may also experience delays to the commencement of construction for new development projects including the next phase of the development in Houston, Texas. For more information on Granite’s development projects, please see “SIGNIFICANT MATTERS — Construction, Development and Property Commitments”.

Granite’s current liquidity positions it well to capitalize on acquisition opportunities and to continue to execute on its strategic plan in 2021; however, Granite will act on its acquisition pipeline and other opportunities while considering the potential impact that COVID-19, both in the short-term and long-term, will have on its operations, cash flows and portfolio.

Consistent with its usual practice, Granite continues to review the value of its investment properties. The COVID-19 pandemic has not had a significant impact on the valuation of Granite’s investment properties. The duration of the COVID-19 pandemic, including further waves of new

Granite REIT 2020    9

infections in the markets where Granite operates that have led to some targeted public health restrictions and reinstated emergency measures, cannot be predicted. As such, the length and full scope of the economic impact of COVID-19 and other consequential changes it will have on Granite’s business and operations in the long-term cannot be forecasted with certainty at this time. Certain aspects of Granite’s business and operations that could potentially be impacted include rental income, occupancy, capital expenditures, future demand for space, and market rents, all of which ultimately impact the underlying valuation of investment properties.

10    Granite REIT 2020

Property Acquisitions

During the year ended December 31, 2020, Granite has acquired 24 income-producing industrial properties in Canada, the United States and the Netherlands, a property under development in the Netherlands (subsequently completed) and a parcel of development land in the United States. Property acquisitions consisted of the following:

Acquisitions (in millions, except as noted) Property Address	Location		Sq ft(1)		Weighted Average Lease Term, in years by sq ft(1)		Date Acquired		Property Purchase Price(2)		Stabilized Yield(1)
Acquired during the year ended December 31, 2020:
Property under development:
Aquamarijnweg 2 (3)		Bleiswijk, Netherlands		0.2		10.0		March 13, 2020	$	35.6		4.2	%
Income-producing properties:
Oude Graaf 15		Weert, Netherlands		0.2		10.0		May 1, 2020		31.9		4.9	%
De Kroonstraat 1 (4)		Tilburg, Netherlands		0.5		10.0		July 1, 2020		71.7		4.3	%
Francis Baconstraat 4		Ede, Netherlands		0.1		15.1		July 1, 2020		21.4		5.8	%
5600-5630 Timberlea (5)		Mississauga, ON		0.1		5.6		September 28, 2020		19.5		4.1	%
8995 Airport Road		Brampton, ON		0.1		4.9		September 1, 2020		22.2		5.1	%
555 Beck Crescent		Ajax, ON		0.1		10.0		September 30, 2020		15.4		4.6	%
8500 Tatum Road (6)		Palmetto, GA		1.0		14.0		November 12, 2020		105.2		4.4	%
Industrieweg 15		Voorschoten, Netherlands		0.4		5.8		November 20, 2020		24.6		5.9	%
Zuidelijke Havenweg 2		Hengelo, Netherlands		0.3		15.0		December 4, 2020		46.2		4.2	%
Beurtvaartweg 2-4, Sprengenweg 1-2		Nijmegen, Netherlands		0.3		10.0		December 18, 2020		39.1		6.0	%
12 Tradeport Road		Hanover Township, PA		1.4		20.2		December 22, 2020		174.7		5.1	%
250 Tradeport Road		Nanticoke, PA		0.6		5.9		December 22, 2020		79.8		5.1	%
Midwest portfolio (five properties):
6201 Green Pointe Drive South		Groveport, OH		0.5		1.4
8779 Le Saint Drive		Hamilton, OH		0.3		2.5
8754 Trade Port Drive		West Chester, OH		0.5		5.4
445 Airtech Parkway		Indianapolis, IN		0.6		3.5		June 18, 2020		177.6		5.4	%
5415 Centerpoint Parkway		Obetz, OH		0.5		9.5		July 8, 2020		45.1		5.4	%
Memphis portfolio (three properties):
4460 East Holmes Road		Memphis, TN		0.4		7.1
4995 Citation Drive		Memphis, TN		0.4		2.8
8650 Commerce Drive		Southaven, MS		0.7		7.3		June 18, 2020		111.6		5.8	%
Development land:
5005 Parker Henderson Road		Fort Worth, TX		N/A		N/A		June 8, 2020		8.9		N/A
				9.2					$	1,030.5		5.1	%

⁽¹⁾  As at the date of acquisition except as noted in note 3 and 4 below.

⁽²⁾  Purchase price does not include transaction costs associated with property acquisitions.

⁽³⁾ Acquired as a property under development in March 2020; however, the development was completed and the tenant occupied the property as at September 1, 2020. The square feet, weighted average lease term and yield is based on the asset as-complete.

Granite REIT 2020    11

⁽⁴⁾ The purchase price excludes construction costs and holdbacks of $12.4 million (€8.1million) related to a 0.1 million square foot expansion that was underway at the date of acquisition and completed and occupied by the tenant during the fourth quarter of 2020. The square footage and yield for this property represents the as-complete value.

⁽⁵⁾ Represents a complex of four properties located at 5600, 5610, 5620 and 5630 Timberlea Boulevard, Mississauga, Ontario.

⁽⁶⁾  The Trust acquired the leasehold interest in this property which resulted in the recognition of a right-of-use asset, including transaction costs of $105,373. The Trust will acquire freehold title to the property on December 1, 2029.

Fourth Quarter 2020 Acquisitions

On November 12, 2020, Granite acquired 8500 Tatum Road, a 1.0 million square foot, 36’ clear height modern warehouse distribution facility situated on 83.5 acres in the city of Palmetto, Georgia, for $105.2 million (US $80.3 million). The state-of-the-art facility was completed in 2019 and is 100% leased to PVH Corp. for a remaining lease term of 14.0 years, subject to contractual rent escalations. The property, which serves as PVH Corp.’s primary e-commerce distribution facility, was acquired at an in-going yield of 4.4%. The property is well positioned in Atlanta’s Palmetto sub-market within Atlanta’s I-85 logistical thoroughfare less than 15 miles from Hartsfield-Jackson Atlanta International Airport, the world’s busiest passenger airport. The property is approximately 4 miles from the Fairburn CSX Intermodal connecting Atlanta directly to the Port of Savannah and to Southern California.

On November 20, 2020, Granite acquired Industrieweg 15, a 0.4 million square foot, 30’-39’ clear height distribution facility situated on 15.0 acres in the city of Voorschoten, Netherlands for $24.6 million (€15.9 million). The logistics facility is 100% leased to Nippon Express for a remaining lease term of approximately 5.8 years, subject to annual inflationary adjustments, and was acquired at an in-going yield of approximately 5.9%. The property is located 15 minutes from downtown The Hague benefiting from close proximity to the A4 and A44 motorways which connect The Hague with Amsterdam and Schiphol International Airport. The proximity to the Hague and access to a population in excess of 3 million provides the site with future redevelopment potential as a last-mile e-commerce facility.

On December 4, 2020, Granite acquired Zuidelijke Havenweg 2, a 0.3 million square foot, 40’ clear height distribution facility situated on 9.5 acres in the city of Hengelo, Netherlands, for $46.2 million (€29.8 million). This modern logistics facility was completed in various phases between 2015 and 2018 and is 100% leased to Bolk Logistics for a remaining lease term of 15.0 years, subject to contractual rent escalations. The property is strategically located directly adjacent to the inland port Combi Terminal Twente, and is being acquired at an in-going yield of 4.2%. The property benefits from close-proximity to the A1 and A35 motorways and the Twentekanaal, an important link in the North Sea-Baltic shipping corridor.

On December 18, 2020, Granite acquired Beurtvaartweg 2-4 and Sprengenweg 1-2, two buildings totaling 0.3 million square feet situated on 13 acres in Nijmegen, Netherlands for $39.1 million (€25.2 million). The properties are 100% leased to De Klok Logistics B.V. for a remaining weighted average lease term of 10.0 years, subject to annual inflationary adjustments. The properties were acquired at an in-going yield of 6.0%. Strategically located in the city centre of Nijmegen, benefiting from close-proximity to the A12, A37 and A50 motorways and the barge terminal connecting to the Maas-Waal waterways.

On December 22, 2020, Granite acquired two modern distribution buildings totaling 2.0 million square feet situated on approximately 200.0 acres in Northeastern Pennsylvania for $254.5 million (US $194.6 million). Constructed in 2019, the properties are 100% leased to True Value Company

12    Granite REIT 2020

and Spreetail for a remaining weighted average lease term of 15.8 years, subject to contractual rent escalations. The properties, which benefit from modern distribution features and significant tenant investment in the facilities, are being acquired at a stabilized yield, net of free rent, of 5.1%. The assets are well positioned along the I-81/I-78 Corridor, which is one of the most active and fastest-growing distribution nodes in the Northeastern U.S. and in close proximity to the population centres of the East coast.

Property Dispositions

During the year ended December 31, 2020, Granite disposed of three properties for total proceeds of $31.3 million. The three properties were tenanted by Magna, thereby reducing Granite’s overall exposure to Magna to 27% of total GLA and 36% of total annualized revenue as at December 31, 2020.

Dispositions (in millions, except as noted) Property Address	Location		Sq ft		Date Disposed		Sale  Price(1)		Annualized Revenue
Disposed during the year ended December 31, 2020:
201 Patillo Road		Tecumseh, ON		0.3		September 14, 2020	$	17.0	$	1.3
2032 First Street Louth		St. Catharines, ON		0.1		September 14, 2020		6.5		0.5
11 Santiago Russinyol Street		Barcelona, Spain		0.1		October 23, 2020		7.8		0.6
				0.5			$	31.3	$	2.4

⁽¹⁾  Sale price does not include transaction costs associated with disposition.

On January 28, 2021, the Trust disposed of one property located in Redditch, United Kingdom for gross proceeds of $10.6 million (£6.0 million). See “Subsequent Events”.

Granite REIT 2020    13

Construction, Development and Property Commitments

Granite had the following construction and development commitments as at December 31, 2020:

Commitments (in millions, except as noted) Property Location	Additional sq ft		Accruals/ Payments/ Deposits Made(1)		Future Commitments(2)		Total Cost		Year-One Stabilized Yield
As at December 31, 2020:
Development, construction or expansion:
Redevelopment in Altbach, Germany		0.3	$	3.5	$	30.9	$	34.4		6.9	%
Property under development in Houston, Texas		0.7		7.5		33.8		41.3		7.4	%
Expansion of 2095 Logistics Drive, Mississauga, ON		0.1		0.3		10.8		11.1		7.7	%
Tenant improvement commitment at developed property in Plainfield, Indiana		—		—		2.6		2.6		—	%
Other construction commitments		—		1.5		1.9		3.4		—	%
		1.1	$	12.8	$	80.0	$	92.8		7.2	%

⁽¹⁾  As at December 31, 2020.

⁽²⁾ Includes signed contracts and future budgeted expenditures not yet contracted.

In December 2020, Granite signed a construction contract for the redevelopment of a 0.3 million square foot distribution/light industrial facility on Granite’s existing land in Altbach, Germany. The construction work is expected to commence in the first quarter of 2021.

At Granite’s greenfield site in Houston, Texas, speculative construction of the initial phase, consisting of two buildings totaling 0.7 million square feet, commenced in the fourth quarter of 2019. Site servicing is nearing completion and Granite is expecting to commence vertical construction in the second quarter of 2021.

Increase in Distributions

On November 4, 2020, the Trust increased its targeted annualized distribution by 3.4% to $3.00 ($0.25 per month) per stapled unit from $2.90 per stapled unit to be effective upon the declaration of the distribution in respect of the month of December 2020 and payable in mid-January 2021.

Equity Offering

On November 24, 2020, Granite completed an offering of 3,841,000 stapled units at a price of $75.00 per unit for gross proceeds of $288.1 million, including 501,000 stapled units issued pursuant to the exercise of the over-allotment option granted to the underwriters. The net proceeds received by Granite after deducting the total costs related to the offering were $275.9 million.

Debenture Offering

On December 18, 2020, Granite REIT Holdings Limited Partnership (“Granite LP”), a wholly-owned subsidiary of Granite, issued at par $500.0 million aggregate principal amount of 2.378% Series 5 senior debentures due December 18, 2030 (the “2030 Debentures”). Interest on the 2030 Debentures is payable semi-annually in arrears on June 18 and December 18 of each year. Through a cross currency interest rate swap, Granite LP exchanged the Canadian dollar denominated principal and interest payments for Euro denominated payments, resulting in an effective fixed interest rate of 1.045% for the ten-year term of the Debentures (see “2030 Debentures and Cross Currency Interest Rate Swap”).

14    Granite REIT 2020

Subsequent Events

On January 4, 2021, Granite LP redeemed in full the outstanding $250.0 million aggregate principal amount of the 2021 Debentures for a total redemption price of $254.0 million. In conjunction with the redemption, the 2021 Cross Currency Interest Rate Swap was terminated on January 4, 2021 and the related mark to market liability of $17.7 million was settled.

On January 28, 2021, Granite disposed of one property located in Redditch, United Kingdom for gross proceeds of $10.6 million (£6.0 million).

RESULTS OF OPERATIONS

Net Income

The following is a summary of financial information from the combined statements of net income for the three months and years ended December 31, 2020 and 2019, respectively:

Net Income

	Three Months Ended December 31,								Years Ended December 31,
(in millions, except as noted)	2020		2019			$ change			2020			2019			$ change
Rental revenue		$93.2	$	73.6			19.6		$	340.2		$	272.8			67.4
Lease termination and close-out fees		—		—			—			—			0.9			(0.9	)
Revenue		93.2		73.6			19.6			340.2			273.7			66.5
Property operating costs		15.7		9.7			6.0			47.2			35.4			11.8
Net operating income		77.5		63.9			13.6			293.0			238.3			54.7
General and administrative expenses		7.9		8.0			(0.1	)		32.2			31.4			0.8
Depreciation and amortization		0.4		0.2			0.2			1.2			0.9			0.3
Interest income		(0.6)		(1.7	)		1.1			(2.4	)		(9.6	)		7.2
Interest expense and other financing costs		10.8		7.0			3.8			35.8			29.9			5.9
Foreign exchange (gains) losses, net		(0.7)		0.4			(1.1	)		(3.7	)		1.6			(5.3	)
Fair value gains on investment properties, net		(140.8)		(47.5	)		(93.3	)		(273.4	)		(245.4	)		(28.0	)
Fair value losses (gains) on financial instruments, net		(1.3)		(1.0	)		(0.3	)		3.4			(1.2	)		4.6
Loss on sale of investment properties, net		0.7		1.0			(0.3	)		0.9			3.0			(2.1	)
Other expense		—		2.7			(2.7	)		—			2.7			(2.7	)
Income before income taxes		201.1		94.8			106.3			499.0			425.0			74.0
Income tax expense		33.5		4.2			29.3			69.1			42.7			26.4
Net income		$167.6	$	90.6			77.0		$	429.9		$	382.3			47.6
Net income attributable to:
Stapled unitholders		167.6		90.6			77.0			429.8			382.1			47.7
Non-controlling interests		—		—			—			0.1			0.2			(0.1	)
		$167.6	$	90.6			77.0		$	429.9		$	382.3			47.6

Granite REIT 2020    15

Foreign Currency Translation

The majority of Granite’s investment properties are located in Europe and the United States and the cash flows derived from such properties are primarily denominated in Euros and US dollars. Accordingly, fluctuations in the Canadian dollar, Granite’s reporting currency, relative to the Euro and US dollar will result in fluctuations in the reported values of revenues, expenses, cash flows, assets and liabilities. The most significant foreign currency exchange rates that impact Granite’s business are summarized in the following table:

	Average Exchange Rates													Period End Exchange Rates
	Three Months Ended December 31,							Years Ended December 31,						December 31, 2020		December 31, 2019
	2020		2019		Change			2020		2019		Change						Change
$ per €1.00		1.553		1.462		6%			1.529		1.485		3%		1.560		1.455		7%
$ per US$1.00		1.303		1.320		(1%	)		1.341		1.327		1%		1.275		1.296		(2%	)

The average exchange rates of the Canadian dollar relative to the Euro for the three months and year ended December 31, 2020 compared to the prior year periods were higher, which on a comparative basis, increased the Canadian dollar equivalent of revenue and expenses from Granite’s European operations.

For the three months ended December 31, 2020 compared to the prior year period, the average exchange rate of the Canadian dollar relative to the US dollar was lower, which on a comparative basis, decreased the Canadian dollar equivalent of revenue and expenses from Granite’s US operations.

For the year ended December 31, 2020 compared to the prior year period, the average exchange rates of the Canadian dollar relative to the US dollar was higher, which on a comparative basis, increased the Canadian dollar equivalent of revenue and expenses from Granite’s US operations.

The period end exchange rate of the Canadian dollar relative to the Euro on December 31, 2020 was higher when compared to the December 31, 2019 exchange rate. As a result, the Canadian dollar equivalent of assets and liabilities from Granite’s European operations was higher when compared to December 31, 2019.

The period end exchange rate of the Canadian dollar relative to the US dollar on December 31, 2020 was lower when compared to the December 31, 2019 exchange rate. As a result, the Canadian dollar equivalent of assets and liabilities from Granite’s US operations was lower when compared to December 31, 2019.

On a net basis, the effect of the changes in exchange rates on Granite’s operating results for the three months and year ended December 31, 2020 was as follows:

Effects of Changes in Exchange Rates on Operating Results

	Three Months Ended December 31,			Years Ended December 31,
(in millions, except per unit information)	2020 vs 2019			2020 vs 2019
Increase in revenue	$	1.2		$	4.1
Increase in NOI — cash basis		1.3			3.8
Increase (decrease) in net income		(0.3	)		3.9
Increase in FFO		0.7			3.5
Increase in AFFO		0.6			3.4
Increase in FFO per unit	$	0.01		$	0.06
Increase in AFFO per unit	$	0.01		$	0.06

16    Granite REIT 2020

Operating Results

Revenue

Revenue

	Three Months Ended December 31,						Years Ended December 31,
	2020		2019		$ change		2020		2019		$ change
Rental revenue and amortization(1)	$	78.1	$	64.3		13.8	$	295.2	$	240.3		54.9
Tenant recoveries		15.1		9.3		5.8		45.0		32.5		12.5
Lease termination and close-out fees		—		—		—		—		0.9		(0.9	)
Revenue	$	93.2	$	73.6		19.6	$	340.2	$	273.7		66.5

⁽¹⁾  Rental revenue and amortization include base rent, straight-line rent amortization and tenant incentive amortization.

Revenue for the three month period ended December 31, 2020 increased by $19.6 million to $93.2 million from $73.6 million in the prior year period. The components contributing to the change in revenue are detailed below:

Q4 2020 vs Q4 2019 Change in Revenue

Additional details pertaining to the components of the change in revenue are as follows:

• contractual rent adjustments included $0.2 million from consumer price index based increases and $0.9 million from fixed contractual adjustments related to rent escalations;

• the acquisitions of properties located in the United States, Canada and the Netherlands beginning in the fourth quarter of 2019 increased revenue by $18.9 million, which included $6.4 million of tenant recoveries;

• revenue increased by $1.1 million due to various renewal and re-leasing activities for properties primarily in Canada and the United States;

• the sale of properties located in Canada, the United States and Spain during the fourth quarter of 2019 and during 2020 decreased revenue by $1.7 million; and

Granite REIT 2020    17

• foreign exchange had a $1.2 million positive impact as the relative weakening and strengthening of the Canadian dollar against the Euro and US dollar, respectively, increased revenue by $1.7 million and decreased revenue by $0.5 million, respectively.

Revenue for the year ended December 31, 2020 increased $66.5 million to $340.2 million from $273.7 million in the prior year period. The components contributing to the change in revenue are detailed below:

Year 2020 vs Year 2019 Change in Revenue

Additional details pertaining to the components of the change in revenue are as follows:

• contractual rent adjustments included $1.1 million from consumer price index based increases and $2.6 million from fixed contractual adjustments related to rent escalations;

• the acquisitions of properties located in the United States, Canada and the Netherlands during 2019 and 2020 increased revenue by $63.9 million, which included $14.4 million of tenant recoveries;

• revenue increased by $3.1 million due to various renewal and re-leasing activities for properties located in Canada, the United States, the Netherlands and Poland;

• revenue decreased by $0.9 million as a result of lease close-out fees received in 2019 for two properties in Canada that were disposed of in the prior year;

• the sale of properties located in Canada, the United States and Spain during 2019 and 2020 decreased revenue by $6.3 million; and

• foreign exchange had a net $4.1 million positive impact as the relative weakening of the Canadian dollar against the Euro and US dollar increased revenue by $3.1 million and $1.0 million, respectively.

18    Granite REIT 2020

Revenue by major currency for the three month periods and years ended December 31, 2020 and 2019 was as follows:

Revenue by Currency

As a majority of the Trust’s revenue is denominated in currencies other than the Canadian dollar, Granite uses derivative financial instruments, including cross currency interest rate swaps, forward currency contracts and foreign exchange collars, to partially hedge its exposure to foreign currencies and reduce the potential impact that foreign currency rate changes may have on Granite’s operating results, cash flows and distributions (see “LIQUIDITY AND CAPITAL RESOURCES — Debt Structure”).

Granite REIT 2020    19

Net Operating Income

Net operating income (“NOI”) during the three months ended December 31, 2020 was $77.5 million compared to $63.9 million during the three months ended December 31, 2019. NOI in the year ended December 31, 2020 was $293.0 million compared to $238.3 million in the year ended December 31, 2019. NOI — cash basis excludes the impact of lease termination, close-out fees, straight-line rent and tenant incentive amortization and reflects the cash generated by the income-producing properties excluding lease termination and close-out fees on a period-over-period basis. NOI — cash basis was $76.3 million in the three months ended December 31, 2020 compared with $63.8 million in the prior year period, an increase of 19.6%. NOI — cash basis was $289.5 million in the year ended December 31, 2020 compared with $237.4 million in the year ended December 31, 2019, an increase of 21.9%.

Same property NOI — cash basis refers to the NOI — cash basis for those properties owned by Granite throughout the entire current and prior year periods under comparison. Same property NOI — cash basis excludes properties that were acquired, disposed of, classified as properties under or held for development or assets held for sale during the periods under comparison. Same property NOI — cash basis in the three months ended December 31, 2020 was $61.8 million, compared with $59.1 million in the prior year period. Same property NOI — cash basis in the year ended December 31, 2020 was $221.1 million, compared to $209.6 million in the year ended December 31, 2019. The changes in NOI, NOI — cash basis and same property NOI — cash basis are detailed below:

Changes in NOI, NOI — Cash Basis and Same Property NOI — Cash Basis

	Sq ft(1) (in millions)		Three Months Ended December 31,											Sq ft(1)		Years Ended December 31,
			2020			2019			$ change			% change		(in millions)		2020			2019			$ change			% change
Revenue			$	93.2		$	73.6			19.6						$	340.2		$	273.7			66.5
Less: Property operating costs				(15.7	)		(9.7	)		(6.0	)						(47.2	)		(35.4	)		(11.8	)
NOI			$	77.5		$	63.9			13.6			21.3%			$	293.0		$	238.3			54.7			23.0%
Add (deduct):
Lease termination and close-out fees				—			—			—							—			(0.9	)		0.9
Straight-line rent amortization				(2.6	)		(1.4	)		(1.2	)						(8.8	)		(5.1	)		(3.7	)
Tenant incentive amortization				1.4			1.3			0.1							5.3			5.1			0.2
NOI — cash basis		49.5	$	76.3		$	63.8			12.5			19.6%		49.5	$	289.5		$	237.4			52.1			21.9%
Less NOI — cash basis for:
Acquisitions		14.6		(14.1	)		(3.4	)		(10.7	)				17.9		(66.3	)		(21.0	)		(45.3	)
Dispositions, assets held for sale and developments		1.4		(0.4	)		(1.3	)		0.9					1.4		(2.1	)		(6.8	)		4.7
Same property NOI — cash basis		33.5	$	61.8		$	59.1			2.7			4.6%		30.2	$	221.1		$	209.6			11.5			5.5%

⁽¹⁾  The square footage relating to the NOI — cash basis represents GLA of 49.5 million square feet as at December 31, 2020. The square footage relating to the same property NOI — cash basis represents the aforementioned GLA excluding the impact from the acquisitions, dispositions, and developments during the relevant period.

20    Granite REIT 2020

Property operating costs include recoverable and non-recoverable costs from tenants and consist of property taxes, utilities, insurance, repairs and maintenance, legal and other property-related expenses. None of Granite’s employee compensation expenses are included in property operating costs.

Straight-line rent amortization represents the scheduled fixed rent changes or rent-free periods in leases that are recognized in revenue evenly on a straight-line basis over the term of the lease. Tenant incentive amortization mainly represents allowances provided to tenants that are recognized in revenue evenly on a straight-line basis over the term of the lease and primarily comprises the amortization associated with the cash allowance incentives paid to Magna in respect of the 10-year lease extensions exercised during the 2014 year at the Thondorf and Eurostar properties in Graz, Austria.

NOI — cash basis for the three months ended December 31, 2020 increased $12.5 million to $76.3 million from $63.8 million in the prior year period, representing an increase of 19.6%. NOI — cash basis for the year ended December 31, 2020 increased $52.1 million to $289.5 million from $237.4 million in the prior year period, representing an increase of 21.9%. These increases in NOI — cash basis in the three month period and year ended December 31, 2020 were a result of the increase in rental revenue as noted previously, partially offset by an increase in property operating costs primarily relating to the properties acquired in 2019 and 2020.

Same property NOI — cash basis for the three months ended December 31, 2020 increased $2.7 million (4.6%) to $61.8 million primarily due to the increase in contractual rents arising from both consumer price index and fixed rent increases, re-leasing and renewals of various leases for properties primarily located in the United States, Canada and the Netherlands and the favourable foreign exchange impact from the weakening of the Canadian dollar against the Euro, partially offset by the slight strengthening of the Canadian dollar against the US dollar. Excluding the impact of foreign exchange, same property NOI — cash basis for the three month period ended December 31, 2020 would have increased by 2.1% relative to the prior year period.

Same property NOI — cash basis for the year ended December 31, 2020 increased $11.5 million (5.5%) to $221.1 million primarily due to the increase in contractual rents, re-leasing and renewals of various leases for properties located in the United States, Canada, the Netherlands and Austria, an expansion at a property in the United States and the favourable foreign exchange impact from the weakening of the Canadian dollar against the US dollar and the Euro. Excluding the impact of foreign exchange, same property NOI — cash basis for the year ended December 31, 2020 would have increased by 3.7% relative to the prior year period.

Granite REIT 2020    21

NOI — cash basis for the three month periods and years ended December 31, 2020 and 2019 by geography was as follows:

NOI — Cash Basis by Geography

Granite’s property portfolio and NOI — cash basis are geographically diversified, which reduces the risk to Granite’s operating results from any particular country’s economic downturn.

22    Granite REIT 2020

Same property NOI — cash basis for the three month periods and years ended December 31, 2020 and 2019 by geography was as follows:

Same Property NOI — Cash Basis by Geography

	Three Months Ended December 31,						Years Ended December 31,
	2020		2019		% change		2020		2019		% change
Canada	$	12.4	$	11.3		9.7%	$	40.3	$	37.4		7.8%
United States		21.2		21.3		(0.5)%		71.7		66.6		7.7%
Austria		17.5		16.5		6.1%		69.1		67.0		3.1%
Germany		6.5		6.2		4.8%		25.3		24.4		3.7%
Netherlands		2.8		2.5		12.0%		9.3		8.9		4.5%
Europe — Other		1.4		1.3		7.7%		5.4		5.3		1.9%
Same Property NOI — cash basis	$	61.8	$	59.1		4.6%	$	221.1	$	209.6		5.5%

Same property NOI — cash basis for the three month period and year ended December 31, 2020 includes $0.4 million and $1.4 million, respectively, associated with a 0.3 million square foot building expansion at a property located in West Jefferson, Ohio that was completed in the prior year. Excluding the NOI associated with the expansion, same property NOI — cash basis would have increased 4.0% in the three month period ended December 31, 2020 (1.6% on a constant currency basis) and 4.8% in the year ended December 31, 2020 (2.9% on a constant currency basis) relative to the prior year periods.

Constant currency same property NOI — cash basis for the three month periods and years ended December 31, 2020 and 2019 by geography was as follows, which is calculated by converting the comparative same property NOI — cash basis at current exchange rates:

Constant Currency Same Property NOI — Cash Basis by Geography

	Three Months Ended December 31,						Years Ended December 31,
	2020		2019		% change		2020		2019		% change
Canada	$	12.4	$	11.3		9.7%	$	40.3	$	37.4		7.8%
United States		21.2		21.0		1.0%		71.7		67.4		6.4%
Austria		17.5		17.6		(0.6)%		69.1		69.0		0.1%
Germany		6.5		6.6		(1.5)%		25.3		25.1		0.8%
Netherlands		2.8		2.7		3.7%		9.3		9.1		2.2%
Europe — Other		1.4		1.3		7.7%		5.4		5.3		1.9%
Constant Currency Same Property NOI — cash basis (1)	$	61.8	$	60.5		2.1%	$	221.1	$	213.3		3.7%

⁽¹⁾  Constant currency same property NOI — cash basis is calculated by converting the comparative same property NOI — cash basis at current FX rates.

Granite REIT 2020    23

General and Administrative Expenses

General and administrative expenses consisted of the following:

General and Administrative Expenses

	Three Months Ended December 31,							Years Ended December 31,
	2020		2019		$ change			2020		2019		$ change
Salaries and benefits	$	4.0	$	3.6		0.4		$	15.1	$	13.8		1.3
Audit, legal and consulting		0.8		0.8		—			3.4		4.3		(0.9	)
Trustee/director fees and related expenses		0.4		0.3		0.1			1.4		1.4		—
Executive unit-based compensation expense including distributions		1.1		1.5		(0.4	)		4.8		4.5		0.3
Fair value remeasurement of trustee/director and executive unit-based compensation plans		0.3		0.4		(0.1	)		2.1		1.9		0.2
Other public entity costs		0.6		0.5		0.1			2.0		2.1		(0.1	)
Office rents including property taxes and common area maintenance costs		0.1		0.1		—			0.4		0.4		—
Capital tax		—		0.1		(0.1	)		0.6		0.4		0.2
Information technology		0.3		0.2		0.1			1.1		1.0		0.1
Other		0.3		0.5		(0.2	)		1.3		1.6		(0.3	)
General and administrative expenses	$	7.9	$	8.0		(0.1	)	$	32.2	$	31.4		0.8

General and administrative expenses were $7.9 million for the three month period ended December 31, 2020 and decreased $0.1 million in comparison to the prior year period primarily as a result of the following:

• a decrease in executive unit-based compensation expense due to the forfeitures of awards outstanding related to the departure of a former senior executive in 2020; and

• a decrease in other general office and administrative expenses resulting from a reduction of travel and recruitment expenses in the fourth quarter of 2020, partially offset by;

• an increase in salaries and benefits expense primarily due to additional employees in the United States and the Netherlands.

General and administrative expenses were $32.2 million for the year ended December 31, 2020 and increased $0.8 million in comparison to the prior year period primarily as a result of the following:

• an increase in salaries and benefits expense primarily due to additional employees in the United States and the Netherlands and severance related to a departed senior executive in the third quarter of 2020, partially offset by the higher compensation costs related to the departure of the former CFO in the second quarter of 2019;

• an increase in executive unit-based compensation expense due to greater awards outstanding under the plan; and

• an increase in the fair value remeasurement expense associated with the trustee/director and executive unit-based compensation plans resulting from an increase in the market price of the Trust’s stapled units compared to the prior year period, partially offset by;

24    Granite REIT 2020

• a decrease in audit, legal and consulting expenses due to costs incurred in the prior year period associated with corporate advisory matters including internal reorganizations and administrative matters; and

• a decrease in other general office and administrative expenses resulting from a reduction of travel and recruitment expenses in the current year period.

Interest Income

Interest income for the three month period ended December 31, 2020 decreased $1.1 million to $0.6 million from $1.7 million in the prior year period due to lower interest rates on invested cash. Interest income for the year ended December 31, 2020 decreased $7.2 million to $2.4 million from $9.6 million in the prior year period due to the reduction of average cash balances on hand and lower interest rates on invested cash.

Interest Expense and Other Financing Costs

Interest expense and other financing costs for the three month period ended December 31, 2020 increased $3.8 million to $10.8 million from $7.0 million in the prior year period. Interest expense and other financing costs for the year ended December 31, 2020 increased $5.9 million to $35.8 million from $29.9 million in the prior year period. Both increases were primarily related to increased interest costs associated with higher debt balances resulting from the $500 million 2027 Debentures issued in June 2020 and the $500 million 2030 Debentures issued in December 2020.

As at December 31, 2020, Granite’s weighted average cost of interest-bearing debt was 2.21% (December 31, 2019 — 1.83%) and the weighted average debt term-to-maturity was 5.6 years (December 31, 2019 — 4.4 years).

Foreign Exchange Gains and Losses, Net

Granite recognized net foreign exchange gains of $0.7 million and foreign exchange losses of $0.4 million in the three month periods ended December 31, 2020 and 2019, respectively. The $1.1 million increase in net foreign exchange gains is primarily due to the remeasurement of certain monetary assets and liabilities of the Trust that are denominated in US dollars and Euros as a result of the weakening of the Canadian dollar against these currencies and foreign exchange gains realized on the settlement of foreign exchange collar contracts.

Granite recognized net foreign exchange gains of $3.7 million and net foreign exchange losses of $1.6 million in the years ended December 31, 2020 and 2019, respectively. The $5.3 million increase in net foreign exchange gains is primarily due to the remeasurement of certain monetary assets and liabilities of the Trust that are denominated in US dollars and Euros as a result of the weakening of the Canadian dollar against these currencies and foreign exchange gains realized on the settlement of foreign exchange collar contracts.

Fair Value Gains and Losses on Investment Properties, Net

Net fair value gains on investment properties were $140.8 million and $47.5 million in the three month periods ended December 31, 2020 and 2019, respectively. In the three month period ended December 31, 2020, net fair value gains of $140.8 million were primarily attributable to favourable changes in leasing assumptions associated with fair market rent increases as well as compression in discount and terminal capitalization rates for properties located in the GTA (Canada) and across the United States as well as compression in discount and terminal capitalization rates for certain of the Trust’s modern warehouse properties in Germany and the Netherlands, partially offset by an increase in discount rates for certain properties located in Austria due to market conditions and the operating nature of the properties in this jurisdiction.

Granite REIT 2020    25

Net fair value gains on investment properties in the three month period ended December 31, 2019 of $47.5 million were primarily attributable to (i) a compression in discount or terminal capitalization rates for certain properties primarily located in Canada and, to a lesser extent, the United States, Germany and the Netherlands which resulted from the continued market demand for industrial real estate and (ii) the favourable changes in leasing assumptions associated with fair market rent increases for certain properties located in Canada.

Net fair value gains on investment properties were $273.4 million and $245.4 million in the years ended December 31, 2020 and 2019, respectively. In the year ended December 31, 2020, net fair value gains of $273.4 million were attributable to various factors including (i) an increase in fair value for the acquired property in Dallas, Texas as a result of market confirmation of capitalization rates favourable to initial acquisition metrics of the forward purchase for this modern e-commerce facility, (ii) the favourable changes in leasing assumptions associated with fair market rent increases for properties located in Canada and the United States and (iii) the increase in fair value of the recently developed property in Plainfield, Indiana as a result of executing a full building 10-year lease, partially offset by an increase in discount rates for certain properties located in Austria and Germany due to market conditions and the operating nature of the properties across these jurisdictions.

Net fair value gains on investment properties in the year ended December 31, 2019 of $245.4 million were attributable to various factors including (i) the positive changes in leasing assumptions associated with lease renewals and fair market rent increases for properties located in Canada and the United States and (ii) a compression in discount and terminal capitalization rates for certain properties across Granite’s portfolio resulting from the continued market demand for warehouse distribution facilities.

Fair Value Gains and Losses on Financial Instruments, Net

Fair value gains on financial instruments for the three month periods ended December 31, 2020 and 2019 were $1.3 million and $1.0 million, respectively. Fair value losses on financial instruments for the year ended December 31, 2020 were $3.4 million and fair value gains on financial instruments for the year ended December 31, 2019 were $1.2 million. The fair value gains on financial instruments for the three months ended December 31, 2020 and the fair value losses on the financial instruments for the year ended December 31, 2020 are related to (i) the fair value change of the 2024 Cross Currency Interest Rate Swap and 2021 Cross Currency Interest Rate Swap and (ii) unrealized losses on foreign exchange forward contracts, partially offset by fair value gains on foreign exchange collar contracts. These derivatives have not been designated in a hedging relationship and are therefore recorded in the statements of net income.

Loss on Sale of Investment Properties, Net

The loss on sale of investment properties for the three month periods ended December 31, 2020 and 2019 was $0.7 million and $1.0 million, respectively. The loss on sale of investment properties for the years ended December 31, 2020 and 2019 was $0.9 million and $3.0 million, respectively. The loss on sale of investment properties is primarily related to broker commissions and legal and advisory costs associated with the dispositions or planned dispositions of assets held for sale.

26    Granite REIT 2020

Income Tax Expense

Income tax expense comprised the following:

Income Tax Expense

	Three Months Ended December 31,									Years Ended December 31,
	2020			2019			$ change			2020			2019			$ change
Foreign operations	$	1.7		$	1.2			0.5		$	6.7		$	5.3			1.4
Withholding taxes		—			0.4			(0.4	)		—			0.4			(0.4	)
Related to sale of an investment property		0.7			—			0.7			0.7			—			0.7
Other		(1.3	)		(1.9	)		0.6			(0.8	)		(0.6	)		(0.2	)
Current tax expense (recovery)		1.1			(0.3	)		1.4			6.6			5.1			1.5
Deferred tax expense		32.4			4.5			27.9			62.5			37.6			24.9
Income tax expense	$	33.5		$	4.2			29.3		$	69.1		$	42.7			26.4

For the three months ended December 31, 2020, the current tax expense increased compared to the prior year period primarily due to the disposition of a property located in Spain in the current year period, a lower reversal of tax provisions compared to the prior year in Canada and Europe for taxation years that have become statute barred, the 2019 reorganization expenses incurred in Austria that were deductible for tax purposes favourably impacting current tax expenses, higher taxes in foreign jurisdictions as a result of acquisitions and the foreign exchange impact resulting from the relative weakening of the Canadian dollar on Euro denominated tax expense, partially offset by withholding taxes paid in 2019 on intercompany dividends.

For the year ended December 31, 2020, the current tax expense increased compared to the prior year period primarily due to the disposition of a property located in Spain in the current year period, the 2019 reorganization expenses incurred in Austria that were deductible for tax purposes favourably impacting current tax expenses, higher taxes in foreign jurisdictions as a result of acquisitions and the foreign exchange impact resulting from the relative weakening of the Canadian dollar on Euro denominated tax expense, partially offset by withholding taxes paid in 2019 on intercompany dividends and a higher reversal of tax provisions compared to the prior year in Canada and Europe for taxation years that have become statute barred.

The increase in deferred tax expense for the three months and year ended December 31, 2020 compared to the prior year period is primarily due to fair value gains on investment properties, partially offset by fair value losses in jurisdictions in which deferred taxes are recorded, as well as the foreign exchange impact resulting from the relative weakening of the Canadian dollar on US and Euro denominated tax expense and an increase in the deferred tax rate in foreign jurisdictions.

Granite REIT 2020    27

Net Income Attributable to Stapled Unitholders

For the three month period ended December 31, 2020, net income attributable to stapled unitholders was $167.6 million compared to $90.6 million in the prior year period. The increase in net income attributable to stapled unitholders was primarily due to a $93.3 million increase in fair value gains on investment properties and a $13.6 million increase in net operating income, partially offset by a $29.3 million increase in income tax expense and a $3.8 million increase in interest expense. The period-over-period variance is further summarized below:

Q4 2020 vs Q4 2019 Change in Net Income Attributable to Stapled Unitholders

For the year ended December 31, 2020, net income attributable to stapled unitholders was $429.8 million compared to $382.1 million in the prior year period. The $47.7 million net increase in net income attributable to stapled unitholders was primarily due to a $54.7 million increase in net operating income, a $28.0 million increase in net fair value gains on investment properties and a $5.3 million increase in foreign exchange gains, partially offset by a $26.4 million increase in income tax expense, a $7.2 million decrease in interest income due to lower interest rates in North America, a $5.9 million increase in interest expense as a result of the issuance of the 2027 Debentures and the 2030 Debentures and a $4.6 million increase in fair value losses on financial instruments. The period-over-period variance is further summarized below:

Year 2020 vs Year 2019 Change in Net Income Attributable to Stapled Unitholders

28    Granite REIT 2020

Funds From Operations and Adjusted Funds From Operations

The reconciliation of net income attributable to stapled unitholders to FFO and AFFO for the three months and years ended December 31, 2020 and 2019 is presented below:

FFO AND AFFO⁽¹⁾ RECONCILIATION

		Three Months Ended December 31,						Years Ended December 31,
(in millions, except per unit information)		2020			2019			2020			2019
Net income attributable to stapled unitholders		$	167.6		$	90.6		$	429.8		$	382.1
Add (deduct):
Fair value gains on investment properties, net			(140.8	)		(47.5	)		(273.4	)		(245.4	)
Fair value (gains) losses on financial instruments			(1.3	)		(1.0	)		3.4			(1.2	)
Loss on sale of investment properties			0.7			1.0			0.9			3.0
Current income tax expense associated with the sale of an investment property			0.7			—			0.7			—
Deferred income tax expense			32.4			4.5			62.5			37.6
Fair value remeasurement expense relating to the Executive Deferred Stapled Unit Plan			0.3			0.3			1.4			1.3
Non-controlling interests relating to the above			—			—			0.1			0.1
FFO	[A]	$	59.6		$	47.9		$	225.4		$	177.5
Add (deduct):
Maintenance or improvement capital expenditures incurred			(0.4	)		(0.8	)		(3.6	)		(3.3	)
Leasing commissions incurred(2)			(0.7	)		(0.5	)		(0.8	)		(1.1	)
Tenant allowances incurred			(1.2	)		(0.3	)		(1.8	)		(0.5	)
Tenant incentive amortization			1.3			1.3			5.3			5.2
Straight-line rent amortization			(2.5	)		(1.4	)		(8.8	)		(5.1	)
AFFO(1) (2)	[B]	$	56.1		$	46.2		$	215.7		$	172.7
Per unit amounts:
Basic and diluted FFO per stapled unit	[A]/[C] and [A]/[D]	$	1.00		$	0.91		$	3.98		$	3.62
Basic and diluted AFFO per stapled unit(1)	[B]/[C] and [B]/[D]	$	0.94		$	0.88		$	3.81		$	3.52
Basic weighted average number of stapled units	[C]		59.4			52.6			56.6			49.0
Diluted weighted average number of stapled units	[D]		59.5			52.6			56.7			49.0

⁽¹⁾  In the current year period, AFFO was calculated by deducting maintenance or improvement capital expenditures, leasing commissions and tenant allowances incurred whereas in prior year periods AFFO was calculated by deducting maintenance or improvement capital expenditures, leasing commissions and tenant allowances paid. The AFFO metrics in the comparative period have been updated to conform to the current period’s presentation. AFFO as well as basic and diluted AFFO per unit for the three months ended December 31, 2019 were previously reported as $46.7 million and $0.89 per unit, respectively. AFFO as well as basic and diluted AFFO per unit for the year ended December 31, 2019 were previously reported as $172.8 million and $3.53 per unit, respectively. Both methods of calculation are in accordance with the REALPAC White Paper (see “NON-IFRS PERFORMANCE MEASURES”). There is no significant difference in these metrics as a result of the change in calculation.

⁽²⁾ In accordance with the REALPAC White Paper, leasing commissions incurred in the three months and year ended December 31, 2020 exclude $0.3 million of leasing commissions incurred on the lease-up of a recently acquired property in Memphis, Tennessee and deemed related to the overall acquisition costs. Leasing commissions incurred in the year ended December 31, 2020 exclude $1.9 million of leasing commissions incurred on the

Granite REIT 2020    29

lease-up of a recently completed development property in Plainfield, Indiana in the second quarter of 2020, $0.5 million of leasing commissions incurred on the lease-up of a recently acquired property in Groveport, Ohio and $0.3 million of leasing commissions incurred on the lease-up of a recently acquired property in Memphis, Tennessee as previously mentioned and deemed related to the overall acquisition costs.

Funds From Operations

FFO for the three month period ended December 31, 2020 was $59.6 million ($1.00 per unit) compared to $47.9 million ($0.91 per unit) in the prior year period. The $11.7 million ($0.09 per unit) increase in FFO is summarized below:

Q4 2020 vs Q4 2019 Change in FFO

FFO for the year ended December 31, 2020 was $225.4 million ($3.98 per unit) compared to $177.5 million ($3.62 per unit) in the prior year period. The $47.9 million ($0.36 per unit) increase in FFO is summarized below:

Year 2020 vs Year 2019 Change in FFO

Included in FFO for the year ended December 31, 2020 is $1.1 million of severance costs associated with the departure of a senior executive. Excluding this severance expense, FFO

30    Granite REIT 2020

would be $226.5 million ($4.00 per unit). In comparison, excluding the net $2.0 million ($0.04 per unit), real estate transfer tax ($2.7 million) and related tax recovery ($0.7 million), which resulted from an internal reorganization and the compensation costs of $2.5 million ($0.05 per unit) associated with the departure of the former CFO, FFO would have been $182.0 million ($3.71 per unit) in the prior year.

Adjusted Funds From Operations

As previously detailed in the FFO and AFFO reconciliation table, AFFO for the three month period ended December 31, 2020 was $56.1 million ($0.94 per unit) compared to $46.2 million ($0.88 per unit) in the prior year period. The $9.9 million ($0.06 per unit) increase in AFFO is summarized below:

Q4 2020 vs Q4 2019 Change in AFFO

Additional details pertaining to the components of the change in AFFO are as follows:

• the $11.7 million increase in FFO, as noted previously; and

• a $0.4 million increase in AFFO from higher maintenance or improvement capital expenditures incurred in the prior year period relating to improvement projects in Thondorf, Austria and Bergen op Zoom, Netherlands, partially offset by;

• a $0.9 million and $0.2 million decrease in AFFO from tenant allowances and leasing commissions incurred, respectively, primarily from re-leasing and renewal activities in the United States and Austria; and

• a $1.1 million decrease in AFFO from tenant incentive and straight-line rent amortization, primarily from re-leasing and renewal activities and property acquisitions in Canada, the United States and the Netherlands.

Granite REIT 2020    31

AFFO for the year ended December 31, 2020 was $215.7 million ($3.81 per unit) compared to $172.7 million ($3.52 per unit) in the prior year period. The $43.0 million ($0.29 per unit) increase in AFFO is summarized below:

Year 2020 vs Year 2019 Change in AFFO

Additional details pertaining to the components of the change in AFFO are as follows:

• the $47.9 million increase in FFO, as noted previously, partially offset by;

• a $1.3 million decrease in AFFO from tenant allowances incurred, primarily from releasing and renewal activities in the United States and Austria; and

• a $3.6 million decrease in AFFO from tenant incentive and straight-line rent amortization, primarily from releasing and renewal activities and property acquisitions in Canada and the United States.

Excluding the aforementioned severance of $1.1 million recognized in the year ended December 31, 2020, AFFO would be $216.8 million ($3.83 per unit). In comparison, excluding the net $2.0 million ($0.04 per unit) real estate transfer tax ($2.7 million) and related tax recovery ($0.7 million), which resulted from an internal reorganization and the compensation costs of $2.5 million ($0.05 per unit) associated with the departure of the former CFO, AFFO would have been $177.2 million ($3.62 per unit) in the prior year.

INVESTMENT PROPERTIES

Granite’s investment properties consist of income-producing properties, properties under development and land held for development. Substantially all of the income-producing properties are for industrial use and can be categorized as (i) modern logistics/distribution warehouse facilities (“modern warehouse facilities”), which were recently acquired or newly developed/redeveloped, (ii) multi-purpose facilities, which are tenantable by a wide variety of potential users or (iii) special purpose properties designed and built with specialized features and leased to Magna. The attributes of the income-producing properties are versatile and are based on the needs of the tenant such that an industrial property used by a certain tenant for light or heavy manufacturing can be used by another tenant for other industrial uses after some retrofitting if necessary. Accordingly, the investment property portfolio is substantially for industrial use and, as such, Granite determined that its asset class comprises industrial properties

32    Granite REIT 2020

for purposes of financial reporting. The fair value of the industrial properties, as noted below, is based upon the current tenanting, existing use and attributes of such properties.

Properties under development are comprised of (i) 50.0 acres greenfield site in Houston, Texas for which speculative construction of the initial phase, consisting of two buildings totaling 0.7 million square feet, has begun and is expected to be completed in the fourth quarter of 2021 and (ii) a site in Altbach, Germany where the demolition of the property is complete and the construction of a distribution/light industrial facility was temporarily placed on hold during 2020 as a result of the COVID-19 pandemic. Construction contract pricing was completed during the fourth quarter of 2020 for this project. Granite now expects to move forward with this development in the first quarter of 2021 and is currently engaged in pre-leasing activity.

Land held for development comprises 36.0 acres of land in Fort Worth, Texas for the planned future development of a 0.6 million square foot e-commerce and logistics warehouse, the remaining 141.0 acres of land in Houston, Texas held for the future development of up to a 2.5 million square foot multi-phased business park capable of accommodating buildings ranging from 0.3 million to 1.2 million square feet (of which 0.7 million square feet is planned in the initial phase of construction, as noted above), 12.9 acres of development land in West Jefferson, Ohio and a 16.0-acre parcel of land located in Wroclaw, Poland that could provide for approximately 0.3 million square feet of logistics-warehouse space.

Summary attributes of the investment properties as at December 31, 2020 and December 31, 2019 are as follows:

Investment Properties Summary

As at December 31,	2020		2019
(in millions, except as noted)
Investment properties — fair value	$	5,855.6	$	4,457.9
Income-producing properties		5,786.3		4,377.6
Properties under development		31.5		51.3
Land held for development		37.8		29.0
Overall capitalization rate(1)		5.6%		6.1%
Number of investment properties		115		91
Income-producing properties		108		85
Properties under development		3		3
Land held for development		4		3
Property metrics
GLA, square feet		49.5		40.0
Occupancy, by GLA		99.6%		99.0%
Weighted average lease term in years, by square footage		6.3		6.5
Total number of tenants		86		60
Magna as a percentage of annualized revenue(2)		36%		42%
Magna as a percentage of GLA		27%		35%

⁽¹⁾  Overall capitalization rate pertains only to income-producing properties.

⁽²⁾  Annualized revenue for each period presented is calculated as rental revenue excluding tenant recoveries, recognized in accordance with IFRS, in the reported month multiplied by 12 months.

Granite REIT 2020    33

The fair value of the investment properties by asset category as at December 31, 2020 and 2019 was as follows:

Fair Value of Investment Properties by Asset Category⁽¹⁾

⁽¹⁾  Number of properties denoted in parentheses.

Granite has a high-quality global portfolio of large-scale properties strategically located in Canada, the United States and Europe. The fair value of the investment properties by country as at December 31, 2020 and December 31, 2019 was as follows:

Fair Value of Investment Properties by Geography⁽¹⁾

⁽¹⁾  Number of properties denoted in parentheses.

34    Granite REIT 2020

The change in the fair value of investment properties by asset category during the year ended December 31, 2020 was as follows:

Change in Fair Value of Investment Properties by Asset Category

	January 1, 2020																December 31, 2020
	Investment properties		Fair value gains (losses)		Acquisitions		Disposals		Capital and leasing expenditures		Foreign exchange gains (losses)		Other changes		Transfers(1)		Investment properties
Modern warehouse facilities		$2,509.3		222.1		1,000.6		—		27.8		(38.7)		8.3		97.7		$3,827.1
Multi-purpose facilities		842.2		57.0		—		(31.3)		2.6		19.1		(0.1)		—		889.5
Special purpose properties		1,026.1		(5.3)		—		—		—		53.4		(4.5)		—		1,069.7
Income-Producing Properties		4,377.6		273.8		1,000.6		(31.3)		30.4		33.8		3.7		97.7		5,786.3
Properties Under Development		51.3		(0.1)		35.8		—		39.1		3.1		—		(97.7)		31.5
Land Held For Development		29.0		(0.3)		9.3		—		0.4		(0.6)		—		—		37.8
		$4,457.9		$273.4		$1,045.7		$(31.3)		$69.9		$36.3		$3.7		—		$5,855.6

⁽¹⁾  The transfers are related to the reclassification of a property under development in Plainfield, Indiana to income-producing properties upon its completion during the second quarter of 2020 and the transfer of a property under development in Bleiswijk, Netherlands to income-producing properties upon its completion during the third quarter of 2020.

During the year ended December 31, 2020, the fair value of investment properties increased by $1,397.7 million primarily due to:

• net fair value gains of $273.4 million which were attributable to various factors including (i) an increase in fair value for the acquired property in Dallas, Texas as a result of market confirmation of capitalization rates favourable to initial acquisition metrics of the forward purchase for this modern e-commerce facility, (ii) the favourable changes in leasing assumptions associated with fair market rent increases for properties located in the GTA, Canada, (iii) the increase in fair value of the recently developed property in Plainfield, Indiana as a result of executing a full building 10-year lease with a new tenant and (iv) compression of terminal capitalization and discount rates across the United States and certain of the Trust’s modern warehouse properties in Germany and the Netherlands;

• the acquisitions of 24 income-producing properties in Canada, the United States and the Netherlands, a property under development in the Netherlands and a parcel of development land in the United States for $1,045.7 million consisting of (i) a property in Weert, Netherlands for $31.9 million, (ii) five properties in Ohio and Indiana, United States for $222.7 million, (iii) three properties in Tennessee and Mississippi, United States for $111.6 million, (iv) a property under development in Bleiswijk, Netherlands for $35.6 million (completed in the third quarter and transferred to income-producing properties), (v) development land in Fort Worth, Texas for $8.9 million, (vi) two properties in Tilburg and Ede, Netherlands for $71.7 million and $21.4 million, respectively, (vii) six properties in the GTA, Canada for $57.0 million, (viii) one property in Palmetto, Georgia for $105.2 million, (ix) two properties in Pennsylvania for $254.5 million, (x) a property in Voorschoten, Netherlands for $24.6 million, (xi) a property in Hengelo, Netherlands for $46.2 million, (xii) two properties in Nijmegen, Netherlands for $39.1 million and (xiii) the associated transaction costs of $15.2 million (see “SIGNIFICANT MATTERS — Property Acquisitions”);

Granite REIT 2020    35

• capital expenditures and leasing costs of $69.9 million, of which $39.1 million related to development of four properties under construction in Indiana and Texas, United States as well as Bleiswijk, Netherlands and Altbach, Germany. During the year ended December 31, 2020, the developments in Indiana and Bleiswijk were completed and subsequently transferred to income-producing properties. Capital expenditures relating to modern warehouse facilities include $8.6 million of construction costs incurred to complete outstanding construction at a property in Dallas, Texas which was acquired in November 2019 and $3.4 million of leasing commissions of which $2.6 million is related to recent acquisitions and completed developments; and

• foreign exchange gains of $36.3 million, which include foreign exchange gains of $107.4 million resulting from the relative weakening of the Canadian dollar against the Euro and foreign exchange losses of $71.1 million resulting from the relative strengthening of the Canadian dollar against the US dollar.

Fair values were 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. Granite measures its investment properties using valuations prepared by management. Granite 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 used during the year ended December 31, 2020. The key valuation metrics for Granite’s investment properties including the discount and terminal capitalization rates by jurisdiction are summarized in note 4 to the audited combined financial statements for the year ended December 31, 2020. In addition, valuation metrics for Granite’s income-producing properties by asset category as at December 31, 2020 and December 31, 2019 were as follows:

Valuation Metrics by Income-Producing Property Asset Category

	Modern warehouse facilities				Multi-purpose facilities				Special purpose properties				Total
As at December 31,	2020		2019		2020		2019		2020		2019		2020		2019
Overall capitalization rate(1)(2)		4.96%		5.42%		5.86%		6.28%		7.71%		7.44%		5.61%		6.06%
Terminal capitalization rate(1)		5.45%		5.97%		6.09%		6.44%		6.87%		7.03%		5.82%		6.32%
Discount rate(1)		5.90%		6.17%		6.76%		6.91%		7.77%		7.38%		6.38%		6.60%

⁽¹⁾ Weighted based on income-producing property fair value.

⁽²⁾ Overall capitalization rate is calculated as stabilized net operating income (property revenue less property expenses) divided by the fair value of the property.

36    Granite REIT 2020

A sensitivity analysis of the fair value of income-producing properties to changes in the overall capitalization rate, terminal capitalization rate and discount rate at December 31, 2020 is presented below:

Sensitivity Analysis of Fair Value of Income-Producing Properties

Rate sensitivity	Overall capitalization rate		Terminal capitalization rate		Discount rate
+50 bps		5,283.6		5,503.9		5,571.9
+25 bps		5,522.9		5,638.9		5,677.8
Base rate	$	5,786.3	$	5,786.3	$	5,786.3
-25 bps		6,078.0		5,947.6		5,897.3
-50 bps		6,402.9		6,125.1		6,011.0

Capital Expenditures and Leasing Costs

Capital expenditures relate to sustaining the existing earnings capacity of the property portfolio.    Capital expenditures can include expansion or development expenditures and maintenance or improvement expenditures. Expansion or development capital expenditures are discretionary in nature and are incurred to generate new revenue streams and/or increase the productivity of a property. Maintenance or improvement capital expenditures relate to sustaining the existing earnings capacity of a property. Leasing costs include direct leasing costs and lease incentives. Direct leasing costs include broker commissions incurred in negotiating and arranging tenant leases. Lease incentives include the cost of leasehold improvements to tenant spaces and/or cash allowances provided to tenants for leasehold improvement costs.

Included in total capital expenditure and leasing cost additions to investment properties are items which relate to the completion or lease up of recently acquired or developed properties. Such items are excluded from Granite’s calculation of AFFO. A reconciliation of total capital and leasing cost additions to investment properties to those included in AFFO for the three months and years ended December 31, 2020 and 2019 is below:

Maintenance Capital Expenditures and Leasing Costs

	Three Months Ended December 31,						Years Ended December 31,
	2020			2019			2020			2019
Additions to investment properties:
Leasing costs	$	0.9		$	0.5		$	3.4		$	1.1
Tenant improvements(1)		1.2			0.3			1.8			0.5
Maintenance capital expenditures		0.8			0.8			4.0			3.3
Other capital expenditures		12.5			0.2			21.2			3.6
	$	15.4		$	1.8		$	30.4		$	8.5
Less:
Leasing costs related to acquisition activities		(0.3	)		—			(0.8	)		—
Leasing costs related to development activities		—			—			(1.9	)		—
Capital expenditures related to property acquisitions		(12.8	)		(0.2	)		(21.5	)		(3.6	)
Capital expenditures and leasing costs included in AFFO	$	2.3		$	1.6		$	6.2		$	4.9

⁽¹⁾ Tenant improvements include tenant allowances and landlord’s work.

Granite REIT 2020    37

During the three month period ended December 31, 2020, included in total capital expenditures and leasing costs of $12.8 million are $12.4 million incurred in connection with the completed expansion of the recently acquired property in Tilburg, Netherlands and $0.4 million related to a property acquired in GTA, Canada during the third quarter. Leasing commissions for a recently acquired property in Memphis, Tennessee were $0.3 million.

During the year ended December 31, 2020, included in total capital expenditures and leasing costs are $21.5 million of costs incurred to complete outstanding construction at a recently acquired property in Dallas, Texas, an expansion at a property in Tilburg, Netherlands and a property in the GTA, Canada, $1.9 million of leasing commissions related to the lease-up at the recently completed development in Plainfield, Indiana and $0.8 million related to leasing commissions for two recently acquired properties acquired in the second quarter of 2020.

The capital expenditures and leasing costs incurred by quarter for the trailing eight quarters were as follows:

Capital Expenditures and Leasing Costs — Trailing Eight Quarters

		Q4’20			Q3’20			Q2’20			Q1’20			Q4’19			Q3’19			Q2’19			Q1’19
Total capital expenditures incurred		$	13.3		$	2.2		$	6.2		$	3.4		$	1.0		$	1.5		$	0.6		$	3.9
Total leasing costs incurred			2.1			1.2			2.0			—			0.8			0.2			0.4			0.2
Total incurred	[A]	$	15.4		$	3.4		$	8.2		$	3.4		$	1.8		$	1.7		$	1.0		$	4.1
Less: Capital expenditures and leasing costs related to acquisitions and developments			(13.1	)		(2.6	)		(6.1	)		(2.4	)		(0.2	)		(0.1	)		(0.4	)		(3.0	)
Capital expenditures and leasing costs included in AFFO	[B]	$	2.3		$	0.8		$	2.1		$	1.0		$	1.6		$	1.6		$	0.6		$	1.1
GLA, square feet	[C]		49.5			45.4			44.3			40.0			40.0			34.9			34.5			32.8
$ total incurred per square feet	[A]/[C]	$	0.31		$	0.07		$	0.19		$	0.09		$	0.05		$	0.05		$	0.03		$	0.13
$ capital expenditures and leasing costs included in AFFO per square feet	[B]/[C]	$	0.05		$	0.02		$	0.05		$	0.03		$	0.04		$	0.05		$	0.02		$	0.03

Development and Expansion Projects

The attributes of Granite’s properties under development and expansion projects as at December 31, 2020 were as follows:

Development and Expansion Projects

	Land acreage (in acres)		Expected sq ft of construction (in millions)		Target/ actual start date of construction		Target completion date		Actual construction costs as at December 31, 2020		Expected total construction cost(1)
As at December 31, 2020
Properties under development
Houston, Texas (Phase 1 only)		50.0		0.7		Q4 2019		Q4 2021	$	7.5	$	41.3
Altbach, Germany		13.0		0.3		Q1 2021		Q1 2022		3.5		34.4
Expansion project
2095 Logistics Drive, Mississauga, Ontario		9.0		0.1		Q4 2019		Q4 2021		0.3		11.0
		72.0		1.1					$	11.3	$	86.7

⁽¹⁾ Construction cost excludes cost of land.

38    Granite REIT 2020

In December 2020, the construction contract related to the 0.3 million square foot development project in Altbach, Germany was signed. Total costs incurred to date of $3.5 million include demolition and remediation of the property. The construction of the distribution/light industrial facility is expected to commence in the first quarter of 2021. Granite is currently engaged in pre-leasing activity for this property.

Leasing Profile

Magna, Granite’s Largest Tenant

During the year ended December 31, 2020, Granite continued to reduce its exposure to Magna through the disposition of three Magna-tenanted properties in Canada and Spain during the third and fourth quarters of 2020 (see “SIGNIFICANT MATTERS — Property Dispositions”). At December 31, 2020, Magna International Inc. or one of its operating subsidiaries was the tenant at 32 (December 31, 2019 — 35) of Granite’s income-producing properties and comprised 36% (December 31, 2019 — 42%) of Granite’s annualized revenue and 27% (December 31, 2019 — 35%) of Granite’s GLA.

According to public disclosures, Magna International Inc. has a credit rating of A3 with a “Negative Outlook” by Moody’s Investor Service, A- with a “Negative Outlook” by Standard & Poor’s and A(low) with a “Negative Trend” by DBRS Limited. As a result of the impact of COVID-19 on Magna’s global operations and the general negative outlook for the automotive sector, Magna’s credit ratings were recently amended by the rating agencies in June and July 2020 with negative outlooks. Magna is a global mobility technology company with complete vehicle engineering and contract manufacturing expertise. Magna’s product capabilities include body, chassis, exteriors, seating, powertrain, active driver assistance, electronics, mechatronics, mirrors, lighting and roof systems.

Granite’s relationship with Magna is an arm’s length landlord and tenant relationship governed by the terms of Granite’s leases. Granite’s properties are generally leased to operating subsidiaries of Magna International Inc. and are not guaranteed by the parent company; however, Magna International Inc. is the tenant under certain of Granite’s leases. The terms of the lease arrangements with Magna generally provide for the following:

• the obligation of Magna to pay for costs of occupancy, including operating costs, property taxes and maintenance and repair costs;

• rent escalations based on either fixed-rate steps or inflation;

• renewal options tied to market rental rates or inflation;

• environmental indemnities from the tenant; and

• a right of first refusal in favour of Magna on the sale of a property.

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

According to its public disclosure, Magna’s success is primarily dependent upon the levels of North American, European and Chinese car and light truck production by Magna’s customers. Granite expects Magna to continuously seek to optimize its global manufacturing footprint and consequently, Magna may or may not renew leases for facilities currently under lease at their expiries.

Granite REIT 2020    39

Other Tenants

In addition to Magna, at December 31, 2020, Granite had 85 other tenants from various industries that in aggregate comprised 64% of the Trust’s annualized revenue. Each of these tenants accounted for less than 7% of the Trust’s annualized revenue as at December 31, 2020.

Granite’s top 10 tenants by annualized revenue at December 31, 2020 are summarized in the table below:

Top 10 Tenants Summary

Tenant	Annualized Revenue %		GLA %		WALT (years)		Credit  Rating(1)(2)
Magna		36%		27%		4.6	A(low)
Amazon		6%		5%		18.2	AA(low)
ADESA		2%		—%		8.6	NR
Restoration Hardware		2%		2%		7.3	NR
Hanon Systems		2%		1%		8.7	BBB
Spreetail FTP		2%		2%		5.8	NR
Ingram Micro		2%		2%		4.0	BB(high)
Cornerstone Brands		2%		2%		3.8	B(high)
Mars Petcare		2%		3%		1.3	NR
Wayfair		2%		2%		4.8	NR
Top 10 Tenants		58%		46%		6.3

⁽¹⁾  Credit rating is quoted on the DBRS equivalent rating scale where publicly available. NR refers to Not Rated.

⁽²⁾  The credit rating indicated may, in some instances, apply to an affiliated company of Granite’s tenant which may not be the guarantor of the lease.

40    Granite REIT 2020

Lease Expiration

As at December 31, 2020, Granite’s portfolio had a weighted average lease term by square footage of 6.3 years (December 31, 2019 — 6.5 years) with lease expiries by GLA (in thousands of square feet) and any lease renewals committed adjusted accordingly, lease count and annualized revenue (calculated as rental revenue excluding tenant recoveries, recognized in accordance with IFRS, in December 2020 multiplied by 12 months, in millions) as set out in the table below:

Lease Maturity Summary

	Total GLA		Total Lease Count		Total Annualized Revenue $		Vacancies		2021						2022				2023				2024				2025				2026				2027 and Beyond
Country							Sq Ft		Sq Ft			Annualized Revenue $			Sq Ft		Annualized Revenue $		Sq Ft		Annualized Revenue $		Sq Ft		Annualized Revenue $		Sq Ft		Annualized Revenue $		Sq Ft		Annualized Revenue $		Sq Ft		Annualized Revenue $
Canada		5,891		30		52.2		—		316			2.9			347		2.9		380		2.3		642		5.4		1,449		10.6		258		2.3		2,499		25.8
Canada-committed		—		—		—		—		(316	)		(2.9	)		—		—		—		—		—		—		—		—		316		2.9		—		—
Canada — net		5,891		30		52.2		—		—			—			347		2.9		380		2.3		642		5.4		1,449		10.6		574		5.2		2,499		25.8
United States		27,518		59		153.5		90		679			3.8			3,843		18.5		4,346		20.2		2,822		14.6		1,309		6.7		2,314		12.2		12,115		77.5
United States-committed		—		—		—		—		(679	)		(3.8	)		—		—		—		—		—		—		—		—		87		0.7		592		3.1
United States — net		27,518		59		153.5		90		—			—			3,843		18.5		4,346		20.2		2,822		14.6		1,309		6.7		2,401		12.9		12,707		80.6
Austria		8,101		11		66.0		101		389			2.8			802		11.2		125		1.3		5,349		39.6		111		0.7		—		—		1,224		10.4
Austria-committed		—		—		—		—		(389	)		(2.8	)		—		—		—		—		—		—		—		—		389		2.8		—		—
Austria-net		8,101		11		66.0		101		—			—			802		11.2		125		1.3		5,349		39.6		111		0.7		389		2.8		1,224		10.4
Germany		3,504		11		25.8		—		548			3.9			283		2.3		1,947		14.7		—		—		195		1.4		303		1.7		228		1.8
Germany-committed		—		—		—		—		(428	)		(3.1	)		—		—		120		0.8		308		2.3		—		—		—		—		—		—
Germany-net		3,504		11		25.8		—		120			0.8			283		2.3		2,067		15.5		308		2.3		195		1.4		303		1.7		228		1.8
Netherlands		3,810		12		27.2		—		—			—			—		—		314		2.3		—		—		630		5.1		355		1.7		2,511		18.1
Europe Other		662		6		5.3		30		337			3.2			101		0.7		194		1.4		—		—		—		—		—		—		—		—
Europe Other committed		—		—		—		—		(37	)		(0.3	)		—		—		37		0.3		—		—		—		—		—		—		—		—
Europe Other- net		662		6		5.3		30		300			2.9			101		0.7		231		1.7		—		—		—		—		—		—		—		—
Total		49,486		129		330.0		221		2,269			16.6			5,376		35.6		7,306		42.2		8,813		59.6		3,694		24.5		3,230		17.9		18,577		133.6
Total-committed		—		—		—		—		(1,849	)		(12.9	)		—		—		157		1.1		308		2.3		—		—		792		6.4		592		3.1
As at December 31, 2020		49,486		129		330.0		221		420			3.7			5,376		35.6		7,463		43.3		9,121		61.9		3,694		24.5		4,022		24.3		19,169		136.7
% of portfolio as at December 31, 2020:
* by sq ft		100%						0.4%		0.9%						10.9%				15.1%				18.4%				7.5%				8.1%				38.7%
* by Annualized Revenue						100%							1.1%					10.8%				13.1%				18.8%				7.4%				7.4%				41.4%

Granite REIT 2020    41

Occupancy Roll Forward

The tables below provide a summary of occupancy changes during the three months and year ended December 31, 2020.

Occupancy Roll Forward for Q4 2020

	Three Months Ended December 31, 2020
(in thousands, sq ft, except as noted)	Canada			USA			Austria		Germany		Netherlands		Europe- Other		Total
Total portfolio size, Oct 1, 2020		5,891			24,536			8,101		3,504		2,648		751		45,431
Vacancy, Oct 1, 2020		—			(402	)		(100)		—		—		—		(502	)
Occupancy, Oct 1, 2020		5,891			24,134			8,001		3,504		2,648		751		44,929
Occupancy %, Oct 1, 2020		100.0%			98.4%			98.8%		100.0%		100.0%		100.0%		98.9%
Acquired occupancy					2,985			—		—		1,007		—		3,992
Completed expansion (Tilburg, Netherlands)		—			—			—		—		150		—		150
Dispositions		—			—			—		—		—		(90)		(90	)
Expiries		(215	)		(357)			—		(195)		—		(133)		(900	)
Renewals		215			234			—		195		—		104		748
New Leases		—			435			—		—		—		—		435
Occupancy, December 31, 2020		5,891			27,431			8,001		3,504		3,805		632		49,264
Total portfolio size, December 31, 2020		5,891			27,521			8,101		3,504		3,805		662		49,484
Occupancy %, December 31, 2020		100.0%			99.7%			98.8%		100.0%		100.0%		95.5%		99.6%

Occupancy Roll Forward for Year 2020

	Year Ended December 31, 2020
(in thousands, sq ft, except as noted)	Canada			USA			Austria			Germany		Netherlands		Europe - Other		Total
Total portfolio size, January 1, 2020		5,904			20,057			8,101			3,504		1,700		751		40,017
Vacancy, January 1, 2020		—			(402	)		—			—		—		—		(402	)
Occupancy, January 1, 2020		5,904			19,655			8,101			3,504		1,700		751		39,615
Occupancy %, January 1, 2020		100.0%			98.0%			100.0%			100.0%		100.0%		100.0%		99.0%
Acquired occupancy		346			6,953			—			—		1,716		—		9,015
Completed developments (Plainfield, Indiana and Bleiswijk)		—			511			—			—		239		—		750
Completed expansion (Tilburg, Netherlands)		—			—			—			—		150		—		150
Dispositions		(359	)		—			—			—		—		(90)		(449	)
Expiries		(608	)		(1,281	)		(100	)		(195)		—		(133)		(2,317	)
Renewals		608			1,073			—			195		—		104		1,980
New Leases		—			520			—			—		—		—		520
Occupancy, December 31, 2020		5,891			27,431			8,001			3,504		3,805		632		49,264
Total portfolio size, December 31, 2020		5,891			27,521			8,101			3,504		3,805		662		49,484
Occupancy %, December 31, 2020		100.0%			99.7%			98.8%			100.0%		100.0%		95.5%		99.6%

42    Granite REIT 2020

LIQUIDITY AND CAPITAL RESOURCES

Liquidity

Granite has various sources of available liquidity including cash, cash equivalents and the unused portion of its unsecured credit facility that aggregated to $1,330.3 million as at December 31, 2020 compared to $797.7 million at December 31, 2019, as summarized below:

Sources of Available Liquidity

As at December 31,	2020		2019
Cash and cash equivalents	$	831.3	$	298.7
Unused portion of credit facility		499.0		499.0
Available liquidity	$	1,330.3	$	797.7
Additional sources of liquidity:
Unencumbered assets(1)	$	5,855.6	$	4,457.9

⁽¹⁾ Unencumbered assets represent the carrying value of investment properties (excluding any assets held for sale) that are not encumbered by secured debt. Granite can seek to obtain secured financing against its unencumbered assets subject to certain restrictions and financial covenant limitations in its credit facility, term loan agreements and trust indentures.

The increase in liquidity is primarily due to net cash proceeds realized from the recent debenture and equity offerings completed in June, November and December 2020. Granite intends to use and has partially used the net proceeds of debenture and equity offerings to fund completed and potential acquisitions of properties, to repay debt and to finance or refinance expenditures associated with Eligible Green Projects (as described in the Granite Green Bond Framework, which is available on Granite’s website), for commitments under existing development projects and for general trust purposes.

Management believes that the Trust’s cash resources, cash flow from operations and available third-party borrowings will be sufficient to finance its operations and capital expenditures program over the next year as well as to pay distributions. Granite expects to fund its ongoing operations and future growth through the use of (i) existing cash and cash equivalents, (ii) cash flows from operating activities, (iii) cash flows from asset sales, (iv) short-term financing available from the credit facility, (v) the issuance of unsecured debentures or equity, subject to market conditions and/or, if necessary, (vi) financing that may be obtained on its unencumbered assets. For information about the impact of COVID-19 on Granite’s liquidity, please see “SIGNIFICANT MATTERS — COVID-19 Pandemic”.

Granite REIT 2020    43

Cash Flow Components

Components of the Trust’s cash flows were as follows:

Cash Flow Components Summary

	Three Months Ended December 31,									Years Ended December 31,
	2020			2019			$ change			2020			2019			$ change
Cash and cash equivalents, beginning of period	$	539.7		$	455.4			84.3		$	298.7		$	658.2			(359.5	)
Cash provided by operating activities		58.4			50.1			8.3			244.3			183.4			60.9
Cash used in investing activities		(490.4	)		(446.0	)		(44.4	)		(1,066.8	)		(876.1	)		(190.7	)
Cash provided by financing activities		730.3			238.8			491.5			1,358.2			343.6			1,014.6
Effect of exchange rate changes on cash and cash equivalents		(6.7	)		0.4			(7.1	)		(3.1	)		(10.4	)		7.3
Cash and cash equivalents, end of period	$	831.3		$	298.7			532.6		$	831.3		$	298.7			532.6

Operating Activities

During the three month period ended December 31, 2020, operating activities generated cash of $58.4 million compared to $50.1 million in the prior year period. The increase of $8.3 million was due to various factors including, among others, a $13.6 million increase in net operating income, partially offset by a $6.2 million increase in interest paid due to higher debt balances resulting from the $500 million 2027 Debentures issued in June 2020 and the $500 million 2030 Debentures issued in December 2020.

In the year ended December 31, 2020, operating activities generated cash of $244.3 million compared to $183.4 million in the prior year period. The increase of $60.9 million was due to various factors including, among others, the following:

• an increase of $54.7 million in net operating income; and

• an increase of $19.6 million from cash provided by working capital changes primarily due to a decrease in accounts receivables and an increase in deferred revenue due to the timing of rent payments, partially offset by;

• an increase in interest paid of $3.8 million due to higher debt balances as mentioned above;

• an increase in leasing commissions paid of $1.6 million;

• an increase in tenant allowances paid of $1.5 million; and

• an increase of $2.7 million in income taxes paid.

44    Granite REIT 2020

Investing Activities

Investing activities for the three month period ended December 31, 2020 used cash of $490.4 million and primarily related to the following:

• the acquisitions of seven income-producing properties in the United States and the Netherlands for $480.3 million (see “SIGNIFICANT MATTERS — Property Acquisitions”); and

• investment property expansion and development paid of $16.2 million relating to three properties in Texas, United States and Tilburg, Netherlands and maintenance and improvement capital expenditures paid of $0.6 million largely relating to capital expenditures at properties in Canada and the United States, partially offset by;

• net proceeds of $6.9 million received from the disposition of an income-producing property in Spain for $7.8 million.

Investing activities for the three month period ended December 31, 2019 used cash of $446.0 million and primarily related to the following:

• the acquisitions of five income-producing properties for $460.4 million consisting of one property in Greenwood, Indiana for $39.6 million, one property in Pooler, Georgia for $61.3 million, one property in Dallas, Texas for $243.3 million, two properties in Southaven, Mississippi for $115.3 million and the associated transaction costs of $0.9 million;

• investment property development and expansion capital expenditures paid of $15.5 million primarily relating to the property under development in Plainfield, Indiana; and

• a $17.1 million cash deposit held in escrow to complete construction work at the Dallas, Texas property acquired in the fourth quarter of 2019. As construction is completed, the constructions costs will be capitalized to the cost of the property. These cash outflows are partially offset by;

• net proceeds of $47.3 million received from the disposition of a property in Canada and five properties in the United States.

Investing activities for the year ended December 31, 2020 used cash of $1,066.8 million and primarily related to the following:

• the acquisitions of 24 income-producing properties in Canada, the United States and the Netherlands and a parcel of development land in the United States for $1,045.7 million and related working capital of $7.0 million acquired as part the acquisitions in Tilburg and Voorschoten, Netherlands (see “SIGNIFICANT MATTERS — Property Acquisitions”); and

• investment property expansion and development paid of $49.6 million relating to four properties in Indiana and Texas, United States and as well as Bleiswijk and Tilburg, Netherlands and Altbach, Germany and maintenance and improvement capital expenditures paid of $5.4 million largely relating to capital expenditures at properties in Canada and the United States, partially offset by;

• net proceeds of $42.5 million received from the disposition of three income-producing properties in Canada and Spain for $30.4 million and the receipt of a proceeds receivable related to the disposal of a property in South Carolina in September 2018 of $12.1 million.

Granite REIT 2020    45

Investing activities for the year ended December 31, 2019 used cash of $876.1 million and primarily related to the following:

• the acquisitions of ten income-producing properties in the United States and the Netherlands, the leasehold interest in two properties in Canada, a parcel of development land in the United States and the associated transactions costs for $930.9 million;

• investment property development and expansion capital expenditures paid of $27.4 million relating to properties under development in Altbach, Germany, Plainfield, Indiana and Houston, Texas and the completed expansion at the property near Columbus, Ohio and maintenance and improvement capital expenditures paid of $2.9 million largely relating to improvement projects at a property in Novi, Michigan, a multi-tenanted property in Olive Branch, Mississippi and a property located in the Netherlands; and

• a $17.1 million cash deposit held in escrow to complete construction work at the Dallas, Texas property as noted above. These cash outflows are partially offset by;

• net proceeds of $85.5 million received from the dispositions of 13 properties in Canada and the United States; and

• the receipt of a $16.8 million vendor take-back mortgage relating to the sale of four properties in Iowa in February 2019.

Financing Activities

Cash provided by financing activities for the three month period ended December 31, 2020 of $730.3 million largely comprised $497.2 million of proceeds from the senior unsecured debentures issued on December 18, 2020, net of issuance costs and $276.0 million of proceeds from the stapled unit offering completed on November 24, 2020, net of issuance costs, partially offset by $42.9 million of distribution payments.

Cash provided by financing activities for the three month period ended December 31, 2019 of $238.8 million comprised $281.6 million of proceeds from the stapled unit offering in October 2019, net of issuance costs, partially offset by $36.7 million of distribution payments.

Cash provided by financing activities for the year ended December 31, 2020 of $1,358.2 million largely comprised $994.2 million of proceeds from the June and December 2020 debenture offerings, net of issuance costs, and $552.9 million of proceeds from the June and November 2020 stapled unit offerings, net of issuance costs, partially offset by $163.1 million of distribution payments and $25.0 million relating to the repurchase of stapled units under the normal course issuer bid.

Cash provided by financing activities for the year ended December 31, 2019 of $343.6 million comprised $502.0 million of proceeds from the stapled unit offerings completed in April and October 2019, net of issuance costs, partially offset by $136.9 million of monthly distribution payments, $13.7 million relating to a special distribution payment and $6.8 million for the settlement of a cross currency interest rate swap.

46    Granite REIT 2020

Debt Structure

Granite’s debt structure and key debt metrics as at December 31, 2020 and December 31, 2019 were as follows:

Summary Debt Structure and Debt Metrics

As at December 31,		2020			2019
Unsecured debt, net		$	2,178.1		$	1,187.0
Cross currency interest rate swaps, net (3)			85.6			30.3
Lease obligations			33.8			33.0
Total debt	[A]	$	2,297.5		$	1,250.3
Less: cash and cash equivalents			831.3			298.7
Net debt	[B]	$	1,466.2		$	951.6
Investment properties, all unencumbered by secured debt	[C]	$	5,855.6		$	4,457.9
Trailing 12-month adjusted EBITDA(1)	[D]	$	264.5		$	204.4
Interest expense		$	35.8		$	29.9
Interest income			(2.4	)		(9.6	)
Trailing 12-month interest expense, net	[E]	$	33.4		$	20.3
Debt metrics
Leverage ratio(1)	[A]/[C]		39%			28%
Net leverage ratio(1)	[B]/[C]		25%			21%
Interest coverage ratio(1)	[D]/[E]		7.9x			10.1x
Unencumbered asset coverage ratio(1)	[C]/[A]		2.5x			3.6x
Indebtedness ratio(1)	[A]/[D]		8.7x			6.1x
Weighted average cost of debt(2)			2.21%			1.83%
Weighted average debt term-to-maturity, in years(2)			5.6			4.4
Ratings and outlook
DBRS			BBB stable			BBB stable
Moody’s			Baa2 stable			Baa2 stable

⁽¹⁾ Represents a non-IFRS measure. For definitions of Granite’s non-IFRS measures, refer to the section “NON-IFRS PERFORMANCE MEASURES”.

⁽²⁾ Excludes lease obligations noted above.

⁽³⁾ Balance is net of the cross currency interest rate swap asset.

Unsecured Debt and Cross Currency Interest Rate Swaps

2030 Debentures and Cross Currency Interest Rate Swap

On December 18, 2020, Granite LP issued $500.0 million aggregate principal amount of 2.378% Series 5 senior debentures due December 18, 2030 (the “2030 Debentures”). Interest on the 2030 Debentures is payable semi-annually in arrears on June 18 and December 18 of each year. At December 31, 2020, all of the 2030 Debentures remained outstanding and the balance, net of deferred financing costs, was $497.1 million.

On December 18, 2020, Granite entered into a cross currency interest rate swap (the “2030 Cross Currency Interest Rate Swap”) to exchange the 2.378% semi-annual interest payments from the 2030 Debentures for Euro denominated interest payments at a 1.045% fixed interest rate. In addition, under the terms of the 2030 Cross Currency Interest Rate Swap, the Trust will pay principal proceeds of €319.4 million in exchange for which it will receive $500.0 million on December 18, 2030. As at December 31, 2020, the fair value of the 2030 Cross Currency Interest Rate Swap was a net financial liability of $10.5 million.

Granite REIT 2020    47

2027 Debentures and Cross Currency Interest Rate Swap

On June 4, 2020, Granite LP issued $500.0 million aggregate principal amount of 3.062% Series 4 senior debentures due June 4, 2027 (the “2027 Debentures”). Interest on the 2027 Debentures is payable semi-annually in arrears on June 4 and December 4 of each year. At December 31, 2020, all of the 2027 Debentures remained outstanding and the balance, net of deferred financing costs, was $497.2 million.

On June 4, 2020, Granite entered into a cross currency interest rate swap (the “2027 Cross Currency Interest Rate Swap”) to exchange the $500.0 million proceeds and the 3.062% semi-annual interest payments from the 2027 Debentures for US$370.3 million and US dollar denominated interest payments at a 2.964% fixed interest rate. In addition, under the terms of the 2030 Cross Currency Interest Rate Swap, the Trust will pay principal proceeds of US$370.3 million in exchange for which it will receive $500.0 million on June 4, 2027. As at December 31, 2020, the fair value of the 2027 Cross Currency Interest Rate Swap was a net financial asset of $28.7 million.

2026 Term Loan and Cross Currency Interest Rate Swap

On December 12, 2018, Granite LP entered into and fully drew down a $300.0 million senior unsecured non-revolving term facility that originally matured on December 12, 2025. On November 27, 2019, Granite refinanced the $300.0 million term facility and extended the maturity date one year to December 11, 2026 (the “2026 Term Loan”). The 2026 Term Loan is fully prepayable without penalty. Any amount repaid may not be re-borrowed. Interest on drawn amounts is calculated based on the Canadian Dollar Offered Rate (“CDOR”) plus an applicable margin determined by reference to the external credit rating of Granite LP and is payable monthly in advance. At December 31, 2020, the full $300.0 million remained outstanding and the balance, net of deferred financing costs and debt modification losses, was $299.5 million.

On December 12, 2018, Granite entered into a cross currency interest rate swap (the “2026 Cross Currency Interest Rate Swap”) to exchange the CDOR plus margin interest payments from the term loan that originally matured in 2025 for Euro denominated payments at a 2.202% fixed interest rate. As a result of the term loan extension on November 27, 2019, the previously existing cross currency interest rate swap was settled for $6.8 million and a new cross currency interest rate swap was entered into. The 2026 Cross Currency Interest Rate Swap exchanges the CDOR plus margin monthly interest payments from the 2026 Term Loan for Euro denominated payments at a 1.355% fixed interest rate. In addition, under the terms of the swap, the Trust will pay principal proceeds of €205.5 million in exchange for which it will receive $300.0 million on December 11, 2026. As at December 31, 2020, the fair value of the 2026 Cross Currency Interest Rate Swap was a net financial liability of $24.9 million.

2024 Term Loan and Cross Currency Interest Rate Swap

On December 19, 2018, Granite LP entered into and fully drew down a US$185.0 million senior unsecured non-revolving term facility that originally matured on December 19, 2022. On October 10, 2019, Granite refinanced the US$185.0 million term facility and extended the maturity date two years to December 19, 2024 (the “2024 Term Loan”). The 2024 Term Loan is fully prepayable without penalty. Any amount repaid may not be re-borrowed. Interest on drawn amounts is calculated based on LIBOR plus an applicable margin determined by reference to the external credit rating of Granite LP and is payable monthly in arrears. At December 31, 2020, the full US$185.0 million remained outstanding and the balance, net of deferred financing costs and debt modification losses, was $235.4 million.

48    Granite REIT 2020

On December 19, 2018, Granite entered into a cross currency interest rate swap (the “2024 Cross Currency Interest Rate Swap”) to exchange the LIBOR plus margin interest payments from the term loan that originally matured in 2022 for Euro denominated payments at a 1.225% fixed interest rate. On September 24, 2019, in conjunction with the term loan refinancing, the Trust entered into a new cross currency interest rate swap (the “2024 Cross Currency Interest Rate Swap”). The 2024 Cross Currency Interest Rate Swap exchanges the LIBOR plus margin monthly interest payments from the 2024 Term Loan for Euro denominated payments at a 0.522% fixed interest rate. In addition, under the terms of the 2024 Cross Currency Interest Rate Swap, Granite will pay principal proceeds of €168.2 million in exchange for which it will receive US$185.0 million on December 19, 2024. As at December 31, 2020, the fair value of the 2024 Cross Currency Interest Rate Swap was a net financial liability of $25.4 million.

2023 Debentures and Cross Currency Interest Rate Swap

On December 20, 2016, Granite LP issued $400.0 million aggregate principal amount of 3.873% Series 3 senior debentures due November 30, 2023 (the “2023 Debentures”). Interest on the 2023 Debentures is payable semi-annually in arrears on May 30 and November 30 of each year. At December 31, 2020, all of the 2023 Debentures remained outstanding and the balance, net of deferred financing costs, was $399.1 million.

On December 20, 2016, Granite entered into a cross currency interest rate swap (the “2023 Cross Currency Interest Rate Swap”) to exchange the 3.873% interest payments from the 2023 Debentures for Euro denominated payments at a 2.43% fixed interest rate. Under the terms of the 2023 Cross Currency Interest Rate 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. As at December 31, 2020, the fair value of the 2023 Cross Currency Interest Rate Swap was a net financial liability of $36.5 million.

2021 Debentures and Cross Currency Interest Rate Swap

In July 2014, Granite LP issued $250.0 million aggregate principal amount of 3.788% Series 2 senior debentures due July 5, 2021 (the “2021 Debentures”). Interest on the 2021 Debentures is payable semi-annually in arrears on January 5 and July 5 of each year. At December 31, 2020, all of the 2021 Debentures remained outstanding and the balance, net of deferred financing costs, was $249.9 million.

In July 2014, Granite entered into a cross currency interest rate swap (the “2021 Cross Currency Interest Rate Swap”) to exchange the 3.788% interest payments from the 2021 Debentures for Euro denominated payments at a 2.68% fixed interest rate. Under the terms of the 2021 Cross Currency Interest Rate 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. As at December 31, 2020, the fair value of the 2021 Cross Currency Interest Rate Swap was a net financial liability of $17.0 million.

On January 4, 2021, Granite LP redeemed in full the outstanding $250.0 million aggregate principal amount of the 2021 Debentures for a total redemption price of $254.0 million. In conjunction with the redemption, the 2021 Cross Currency Interest Rate Swap was terminated on January 4, 2021 and the related mark to market liability of $17.7 million was settled.

The 2023 Debentures, the 2027 Debentures, the 2030 Debentures, the 2024 Term Loan and the 2026 Term Loan rank pari passu with all of the Trust’s other existing and future senior unsecured indebtedness and are guaranteed by Granite REIT and Granite GP. The fair values of the cross currency interest rate swaps are dependent upon a number of assumptions including the Euro exchange rate against the Canadian or US dollars, the US dollar exchange rate against the Canadian dollar and the Euro, and Canadian and US government benchmark interest rates.

Granite REIT 2020    49

Credit Facility

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. Interest on drawn amounts is calculated based on an applicable margin determined by reference to the external credit rating of Granite REIT and Granite GP, as is a commitment fee in respect of undrawn amounts. As at December 31, 2020, the Trust had no amounts drawn from the credit facility and $1.0 million in letters of credit issued against the facility.

Debt Metrics and Financial Covenants

Granite uses the debt metrics noted above to assess its borrowing capacity and the ability to meet its current and future financing obligations. At December 31, 2020, there were no significant changes in the debt ratios other than the temporary increase in the leverage ratio and indebtedness ratio arising from the debenture issuances completed on December 2020. Subsequent to year end, the leverage and indebtedness ratios were decreased as a result of the full redemption of the 2021 Debentures and termination of the 2021 Cross Currency Interest Rate Swap on January 4, 2021. The debt ratios remain relatively favourable and provide financial flexibility for future growth.

Granite’s unsecured debentures, term loans and credit facility agreements contain financial and non-financial covenants that include maintaining certain leverage and debt service ratios. As at December 31, 2020, Granite was in compliance with all of these covenants.

Credit Ratings

Upon issuance of the 2030 Debentures on December 18, 2020, Moody’s Investors Service, Inc. (“Moody’s”) assigned a credit rating of Baa2 with a stable outlook and DBRS assigned a credit rating of BBB with a stable trend to the 2030 Debentures. Upon issuance of the 2027 Debentures on June 4, 2020, Moody’s assigned a credit rating of Baa2 with a stable outlook and DBRS assigned a credit rating of BBB with a stable trend to the 2027 Debentures. On March 13, 2020, Moody’s confirmed its credit rating on the 2021 Debentures and the 2023 Debentures of Baa2 with a stable outlook. On April 2, 2020, DBRS confirmed the BBB rating on the 2021 Debentures and the 2023 Debentures with a stable trend. Credit ratings are intended to provide investors with an independent measure of credit quality of an issue of securities. A rating accorded to any security is not a recommendation to buy, sell or hold such securities and may be subject to revision or withdrawal at any time by the rating organization which granted such rating.

Unitholders’ Equity

Outstanding Stapled Units

As at March 3, 2021, the Trust had 61,688,189 stapled units issued and outstanding.

As at March 3, 2021, the Trust had 92,956 restricted stapled units (representing the right to receive 92,956 stapled units) and 80,001 performance stapled units (representing the right to receive a maximum of 160,002 stapled units) outstanding under the Trust’s Executive Deferred Stapled Unit Plan. The Executive Deferred Stapled Unit Plan is designed to provide equity-based compensation to employees of Granite who are, by the nature of their position or job, in a position to contribute to the success of Granite.

50    Granite REIT 2020

Distributions

On November 4, 2020, the Trust increased its targeted annualized distribution by 3.4% to $3.00 ($0.25 per month) per stapled unit from $2.90 per stapled unit to be effective upon the declaration of the distribution in respect of the month of December 2020 and payable in mid-January 2021.

Monthly distributions declared to stapled unitholders in the three month periods ended December 31, 2020 and 2019 were $44.3 million or 73.4 cents per stapled unit and $38.3 million or 70.8 cents per stapled unit, respectively. Total distributions declared to stapled unitholders in the years ended December 31, 2020 and 2019 were $165.4 million or $2.91 per stapled unit and $139.3 million or $2.81 per stapled unit, respectively.

The distributions declared in January 2021 in the amount of $15.4 million or 25.0 cents per stapled unit were paid on February 16, 2021 and the distributions declared in February 2021 of $15.4 million or 25.0 cents per stapled unit will be paid on March 15, 2021.

Pursuant to the requirement of National Policy 41-201, Income Trusts and Other Indirect Offerings (“NP 41-201”), the following table outlines the differences between cash flow from operating activities and cash distributions as well as the differences between net income and cash distributions, in accordance with the guidelines under NP 41-201.

Cash Flows from Operating Activities in Excess of Distributions Paid and Payable

	Three Months Ended December 31,						Years Ended December 31,
	2020			2019			2020			2019
Net income	$	167.6		$	90.6		$	429.9		$	382.3
Cash flows provided by operating activities		58.4			50.1			244.3			183.4
Monthly cash distributions paid and payable		(44.3	)		(38.3	)		(165.4	)		(139.3	)
Cash flows from operating activities in excess of distributions paid and payable	$	14.1		$	11.8		$	78.9		$	44.1

Monthly distributions for the three month periods and years ended December 31, 2020 and 2019 were funded with cash flows from operating activities.

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

Equity Offerings

On November 24, 2020, Granite completed an offering of 3,841,000 stapled units at a price of $75.00 per unit for gross proceeds of $288.1 million, including 501,000 stapled units issued pursuant to the exercise of the over-allotment option granted to the underwriters. The net proceeds received by Granite after deducting the total costs related to the offering were $275.9 million.

On June 2, 2020, Granite completed an offering of 4,255,000 stapled units at a price of $68.00 per unit for gross proceeds of $289.3 million, including 555,000 stapled units issued pursuant to

Granite REIT 2020    51

the exercise of the over-allotment option granted to the underwriters. The net proceeds received by Granite after deducting the total costs related to the offering were $276.9 million.

Granite has used a portion of the net proceeds from the offerings and intends to use the remaining proceeds to fund acquisitions, potential future acquisitions, commitments under existing development projects and for general trust purposes.

Normal Course Issuer Bid

On May 19, 2020, 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 5,344,576 of Granite’s issued and outstanding stapled units. The NCIB commenced on May 21, 2020 and will conclude on the earlier of the date on which purchases under the bid have been completed and May 20, 2021. Pursuant to the policies of the TSX, daily purchases made by Granite through the TSX may not exceed 58,842 stapled units, subject to certain exceptions. Granite had 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 21, 2019 to May 20, 2020.

During the year ended December 31, 2020, Granite repurchased 490,952 stapled units for total consideration of $25.0 million at an average stapled unit cost of $50.95 per unit, significantly below its net asset value. During the year ended December 31, 2019, Granite repurchased 700 stapled units for consideration of less than $0.1 million, representing an average purchase price of $52.96 per unit.

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

The Trust is subject to various legal proceedings and claims that arise in the ordinary course of business. Management believes that the final outcome of such matters will not have a material adverse effect on the financial position, results of operations or liquidity of the Trust. However, actual outcomes may differ from management’s expectations.

Off-balance sheet arrangements consist of outstanding letters of credit to support certain contractual obligations, property purchase commitments, construction and development project commitments and certain operating agreements. At December 31, 2020, the Trust’s contractual commitments totaled $80.0 million comprised of construction and development projects. Granite expects to fund these commitments over the next year through the use of cash on hand, cash from operations and/or Granite’s credit facility.

In connection with an acquisition of an investment property located in Palmetto, Georgia on November 12, 2020, $72.1 million (US$55.0 million) of bonds were assumed. The authorized amount of the bonds is $70.1 million (US$55.0 million), of which $70.1 million (US$55.0 million) was outstanding as at December 31, 2020. The bonds provide for a real estate tax abatement for the acquired investment property. Through a series of transactions, the Trust is both the bondholder and the obligor of the bonds. Therefore, in accordance with IFRS, the bonds are not recorded in the combined balance sheet.

For further discussion of commitments, contractual obligations, contingencies and off-balance sheet arrangements, refer to notes 8, 10 and 21 to the audited combined financial statements for the year ended December 31, 2020.

52    Granite REIT 2020

RELATED PARTY TRANSACTIONS

For a discussion of the Trust’s transactions with related parties, refer to note 19 of the audited combined financial statements for the year ended December 31, 2020.

NON-IFRS PERFORMANCE MEASURES

Funds from operations

FFO is a non-IFRS performance measure that is widely used by the real estate industry in evaluating the operating performance of real estate entities. Granite calculates FFO as net income attributable to stapled unitholders excluding fair value gains (losses) on investment properties and financial instruments, gains (losses) on sale of investment properties including the associated current income tax, deferred income taxes and certain other items, net of non-controlling interests in such items. The Trust’s determination of FFO follows the definition prescribed by the Real Estate Property Association of Canada (“REALPAC”) White Paper on Funds From Operations & Adjusted Funds From Operations for IFRS dated February 2019 and as subsequently amended (“White Paper”). Granite considers FFO to be a meaningful supplemental measure that can be used to determine the Trust’s ability to service debt, fund capital expenditures and provide distributions to stapled unitholders. FFO is reconciled to net income, which is the most directly comparable IFRS measure (see “RESULTS OF OPERATIONS — Funds From Operations and Adjusted Funds From Operations”). FFO should not be construed as an alternative to net income or cash flow generated from operating activities determined in accordance with IFRS.

Adjusted funds from operations

AFFO is a non-IFRS performance measure that is widely used by the real estate industry in evaluating the recurring economic earnings performance of real estate entities after considering certain costs associated with sustaining such earnings. Granite calculates AFFO as net income attributable to stapled unitholders including all adjustments used to calculate FFO and further adjusts for actual maintenance capital expenditures that are required to sustain Granite’s productive capacity, leasing costs such as leasing commissions and tenant allowances incurred and non-cash straight-line rent and tenant incentive amortization, net of non-controlling interests in such items. The Trust’s determination of AFFO follows the definition prescribed by REALPAC’s White Paper. Granite considers AFFO to be a meaningful supplemental measure that can be used to determine the Trust’s ability to service debt, fund expansion capital expenditures, fund property development and provide distributions to stapled unitholders after considering costs associated with sustaining operating earnings. AFFO is also reconciled to net income, which is the most directly comparable IFRS measure (see “RESULTS OF OPERATIONS — Funds From Operations and Adjusted Funds From Operations”). AFFO should not be construed as an alternative to net income or cash flow generated from operating activities determined in accordance with IFRS.

FFO and AFFO payout ratios

The FFO and AFFO payout ratios are calculated as monthly distributions, which exclude the special distribution, declared to unitholders divided by FFO and AFFO, respectively, in a period. FFO payout ratio and AFFO payout ratio may exclude revenue or expenses incurred during a period that can be a source of variance between periods. The FFO payout ratio and AFFO payout ratio are supplemental measures widely used by analysts and investors in evaluating the sustainability of the Trust’s monthly distributions to stapled unitholders.

Granite REIT 2020    53

FFO and AFFO Payout Ratios

		Three Months Ended December 31,				Years Ended December 31,
(in millions, except as noted)		2020		2019		2020		2019
Monthly distributions declared to unitholders	[A]	$	44.3	$	38.3	$	165.4	$	139.3
FFO			59.6		47.9		225.4		177.5
Add (deduct):
Lease termination and close-out fees			—		—		—		(0.9	)
FFO adjusted for the above	[B]	$	59.6	$	47.9	$	225.4	$	176.6
AFFO			56.1		46.2		215.7		172.7
Add (deduct):
Lease termination and close-out fees			—		—		—		(0.9	)
AFFO adjusted for the above	[C]	$	56.1	$	46.2	$	215.7	$	171.8
FFO payout ratio	[A]/[B]		74%		80%		73%		79%
AFFO payout ratio	[A]/[C]		79%		83%		77%		81%

Net operating income — cash basis

Granite uses NOI on a cash basis, which adjusts NOI to exclude lease termination and close-out fees, and the non-cash impact from straight-line rent and tenant incentive amortization recognized during the period (see “RESULTS OF OPERATIONS — Net Operating Income”). NOI — cash basis is a commonly used measure by the real estate industry and Granite believes it is a useful supplementary measure of the income generated by and operating performance of income-producing properties in addition to the most comparable IFRS measure, which Granite believes is NOI. NOI — cash basis is also a key input in Granite’s determination of the fair value of its investment property portfolio.

Same property net operating income — cash basis

Same property NOI — cash basis refers to the NOI — cash basis for those properties owned by Granite throughout the entire current and prior year periods under comparison. Same property NOI — cash basis excludes properties that were acquired, disposed of, classified as properties under or held for development or assets held for sale during the periods under comparison (see “RESULTS OF OPERATIONS — Net Operating Income”). Granite believes that same property NOI — cash basis is a useful supplementary measure in understanding period-over-period organic changes in NOI — cash basis from the same stock of properties owned.

Constant currency same property NOI

Constant currency same property NOI is a non-GAAP measure used by management in evaluating the performance of properties owned by Granite throughout the entire current and prior year periods on a constant currency basis. It is calculated by taking same property NOI as defined above and excluding the impact of foreign currency translation by converting the same property NOI denominated in foreign currency in the respective periods at the current period average exchange rates (see “RESULTS OF OPERATIONS — Net Operating Income”).

54    Granite REIT 2020

Adjusted earnings before interest, income taxes, depreciation and amortization (“Adjusted EBITDA”)

Adjusted EBITDA is calculated as net income before lease termination and close-out fees, interest expense, interest income, income tax expense, depreciation and amortization expense, fair value gains (losses) on investment properties and financial instruments, other expense relating to real estate transfer tax and loss on the sale of investment properties. Adjusted EBITDA, calculated on a 12-month trailing basis (“trailing 12-month adjusted EBITDA”), represents an operating cash flow measure that Granite uses in calculating the interest coverage ratio and indebtedness ratio noted below. Adjusted EBITDA is also defined in Granite’s debt agreements and used in calculating the Trust’s debt covenants.

Adjusted EBITDA Reconciliation

For years ended December 31	2020			2019
Net income	$	429.9		$	382.3
Add (deduct):
Lease termination and close-out fees		—			(0.9	)
Interest expense and other financing costs		35.8			29.9
Interest income		(2.4	)		(9.6	)
Income tax expense		69.1			42.7
Depreciation and amortization		1.2			0.9
Fair value gains on investment properties, net		(273.4	)		(245.4	)
Fair value (gains) losses on financial instruments		3.4			(1.2	)
Loss on sale of investment properties		0.9			3.0
Other expense		—			2.7
Adjusted EBITDA	$	264.5		$	204.4

Interest coverage ratio

The interest coverage ratio is calculated on a 12-month trailing basis using Adjusted EBITDA divided by net interest expense. Granite believes the interest coverage ratio is useful in evaluating the Trust’s ability to meet its interest expense obligations (see “LIQUIDITY AND CAPITAL RESOURCES — Debt Structure”).

Indebtedness ratio

The indebtedness ratio is calculated as total debt divided by Adjusted EBITDA and Granite believes it is useful in evaluating the Trust’s ability to repay outstanding debt using its operating cash flows (see “LIQUIDITY AND CAPITAL RESOURCES — Debt Structure”).

Leverage and net leverage ratios

The leverage ratio is calculated as the carrying value of total debt divided by the fair value of investment properties while the net leverage ratio subtracts cash and cash equivalents from total debt. The leverage ratio and net leverage ratio are supplemental measures that Granite believes are useful in evaluating the Trust’s degree of financial leverage, borrowing capacity and the relative strength of its balance sheet (see “LIQUIDITY AND CAPITAL RESOURCES — Debt Structure”).

Unencumbered asset coverage ratio

The unencumbered asset coverage ratio is calculated as the carrying value of investment properties (excluding assets held for sale) that are not encumbered by secured debt divided by

Granite REIT 2020    55

the carrying value of total unsecured debt and is a supplemental measure that Granite believes is useful in evaluating the Trust’s degree of asset coverage provided by its unencumbered investment properties to total unsecured debt (see “LIQUIDITY AND CAPITAL RESOURCES — Debt Structure”).

SIGNIFICANT ACCOUNTING ESTIMATES

The preparation of financial statements in conformity with IFRS requires management to apply judgment and make estimates that affect the amounts reported and disclosed in the combined financial statements. Management bases estimates on historical experience and various other assumptions that are believed to be reasonable in the circumstances, the results of which form the basis for making judgments about the values of assets and liabilities. On an ongoing basis, management evaluates its estimates. However, actual results could differ from those estimates.

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

Judgments

Leases

The Trust’s policy for revenue recognition is described in note 2(l) of the audited combined financial statements for the year ended December 31, 2020. The Trust makes judgments in determining whether certain leases are operating or finance leases, in particular tenant leases with long contractual terms or leases where the property is a large square-footage and/or architecturally specialized. The Trust also makes judgments in determining 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.

Investment properties

The Trust’s policy relating to investment properties is described in note 2(d) of the audited combined financial statements for the year ended December 31, 2020. In applying this policy, judgment is used in determining whether certain costs incurred for tenant improvements are additions to the carrying amount of the property or represent incentives, identifying the point at which practical completion of properties under development occurs and determining borrowing costs to be capitalized to the carrying value of properties under development. Judgment is also applied in determining the use, extent and frequency of independent appraisals.

Income taxes

The Trust applies judgment in determining whether it will continue to qualify as a REIT for both Canadian and United States tax purposes for the foreseeable future. However, should it at some point no longer qualify, the Trust would be subject to income tax which could materially affect future distributions to unitholders and would also be required to recognize additional current and/or deferred income taxes.

Estimates and Assumptions

Valuation of investment properties

The fair value of investment properties is determined by management using primarily the discounted cash flow method in which the income and expenses are projected over the anticipated term of the investment plus a terminal value discounted using an appropriate discount rate. The Trust obtains, from time to time, appraisals from independent qualified real

56    Granite REIT 2020

estate valuation experts. However, the Trust does not measure its investment properties based on these appraisals but uses them 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 certain 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 used during the three months and year ended December 31, 2020. The critical assumptions relating to the Trust’s estimates of fair values of investment properties include the receipt of contractual rents, contractual renewal terms, expected future market rental rates, discount rates that reflect current market uncertainties, capitalization rates and recent investment property prices. If there is any change in these assumptions or regional, national or international economic conditions, the fair value of investment properties may change materially. Refer to the “Investment Properties” section and note 4 of the audited combined financial statements for the year ended December 31, 2020 for further information on the estimates and assumptions made by management in connection with the fair values of investment properties.

Fair value of financial instruments

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

Income taxes

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

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

Granite REIT 2020    57

NEW ACCOUNTING PRONOUNCEMENTS AND DEVELOPMENTS

Future Accounting Policy Changes

New accounting standards issued but not yet adopted in the audited combined financial statements for the year ended December 31, 2020 are described below.

Agenda Decision — IFRS 16, Leases

In December 2019, the IFRS Interpretations Committee issued a final agenda decision in regards to the determination of the lease term for cancellable or renewable leases under IFRS 16, Leases (the “Decision”) and whether the useful life of any non-removable leasehold improvements is limited to the lease term of the related lease. As of December 31, 2020, the Trust completed the impact assessment and determined that there is no material impact from the adoption of this interpretation on its combined financial statements.

INTERNAL CONTROLS OVER FINANCIAL REPORTING

Disclosure Controls and Procedures

The President and Chief Executive Officer and the Chief Financial Officer of Granite have evaluated the effectiveness of the Trust’s disclosure controls and procedures as defined in National Instrument 52-109 — Certification of Disclosure in Issuers’ Annual and Interim Filings (“NI 52-109”) and in Rules 13a-15(e) and 15d-15(e) under the United States Securities Exchange Act of 1934 as of December 31, 2020 (the “Evaluation Date”). They have concluded that, as of the Evaluation Date, the Trust’s disclosure controls and procedures were effective to ensure that information required to be disclosed by the Trust in the reports that they file or submit is (i) recorded, processed, summarized and reported within the time periods specified in the applicable rules and (ii) accumulated and communicated to the Trust’s management, including their principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

Management’s Report on Internal Control Over Financial Reporting

The Trust’s management is responsible for establishing and maintaining adequate internal control over financial reporting (as such term is defined in NI 52-109 and Rules 13a-15(f) and 15d-15(f) under the United States Securities Exchange Act of 1934) for the Trust.

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

58    Granite REIT 2020

Under the supervision and with the participation of the Trust’s President and Chief Executive Officer and Chief Financial Officer, management conducted an evaluation of the effectiveness of the Trust’s internal control over financial reporting, as of the Evaluation Date, based on the framework set forth in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on its evaluation under this framework, management concluded that the Trust’s internal control over financial reporting was effective as of December 31, 2020.

Deloitte LLP, an independent registered public accounting firm, who audited and reported on the Trust’s combined financial statements as at and for the year ended December 31, 2020 and whose report is included in the Trust’s annual report for fiscal 2020, has also issued an attestation report under standards of the Public Company Accounting Oversight Board (United States) on the Trust’s internal control over financial reporting as of December 31, 2020. The attestation report precedes the audited financial statements included in the Trust’s annual report for fiscal 2020.

Changes in Internal Control Over Financial Reporting

As of the Evaluation Date, there were no changes in the Trust’s internal control over financial reporting that occurred during the period beginning on the date immediately following the end of the period in respect of which Granite made its most recent previous interim filing and ended on December 31, 2020 that have materially affected, or that are reasonably likely to materially affect, the Trust’s internal control over financial reporting.

Limitation on the Effectiveness of Controls and Procedures

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

RISKS AND UNCERTAINTIES

Investing in the Trust’s stapled units involves a high degree of risk. There are a number of risk factors that could have a material adverse effect on Granite’s business, financial condition, operating results and prospects. These risks and uncertainties are discussed in Granite’s AIF filed with securities regulators in Canada and available online at www.sedar.com and Annual Report on Form 40-F filed with the SEC and available online on EDGAR at www.sec.gov, each in respect of the year ended December 31, 2020.

Granite REIT 2020    59

QUARTERLY FINANCIAL DATA (UNAUDITED)

(in millions, except as noted)	Q4’20		Q3’20		Q2’20		Q1’20		Q4’19		Q3’19		Q2’19		Q1’19
Operating highlights(1)(2)
Revenue	$	93.2	$	87.9	$	81.0	$	78.1	$	73.6	$	68.8	$	67.9	$	63.4
NOI — cash basis(1)	$	76.3	$	74.5	$	71.0	$	67.8	$	63.8	$	60.3	$	58.3	$	55.1
Fair value gain on investment properties, net	$	140.8	$	62.1	$	34.5	$	36.0	$	47.5	$	78.2	$	69.6	$	50.1
Net income attributable to stapled unitholders	$	167.6	$	105.2	$	75.7	$	81.3	$	90.6	$	114.5	$	98.7	$	78.3
Cash provided by operating activities	$	58.4	$	66.1	$	65.2	$	54.6	$	50.1	$	42.8	$	50.1	$	40.4
FFO(1)	$	59.6	$	55.5	$	53.5	$	56.8	$	47.9	$	45.8	$	43.1	$	40.7
AFFO(1)(3)	$	56.1	$	52.7	$	51.3	$	55.6	$	46.2	$	44.4	$	42.3	$	39.8
FFO payout ratio(1)		74%		76%		75%		69%		80%		76%		81%		79%
AFFO payout ratio(1)(3)		79%		80%		78%		70%		83%		78%		83%		81%
Per unit amounts
Diluted FFO(1)	$	1.00	$	0.96	$	0.97	$	1.05	$	0.91	$	0.93	$	0.89	$	0.89
Diluted AFFO(1)(3)	$	0.94	$	0.91	$	0.93	$	1.03	$	0.88	$	0.90	$	0.88	$	0.87
Monthly distributions paid	$	0.73	$	0.73	$	0.73	$	0.73	$	0.70	$	0.70	$	0.70	$	0.70
Special distribution paid		—		—		—		—		—		—		—	$	0.30
Diluted weighted average number of units		59.5		57.9		54.9		54.1		52.6		49.5		48.3		45.7
Financial highlights
Investment properties(4)	$	5,855.6	$	5,338.9	$	5,097.3	$	4,810.0	$	4,457.9	$	3,938.3	$	3,799.1	$	3,532.8
Assets held for sale		—		—		—		—		—	$	48.3	$	50.5	$	38.7
Cash and cash equivalents	$	831.3	$	539.7	$	617.2	$	242.1	$	298.7	$	455.4	$	496.9	$	501.0
Total debt(5)	$	2,297.5	$	1,814.8	$	1,800.5	$	1,309.8	$	1,250.3	$	1,253.2	$	1,285.6	$	1,261.6
Total capital expenditures incurred	$	13.3	$	2.2	$	6.2	$	3.4	$	1.0	$	1.5	$	0.6	$	3.9
Total leasing costs incurred	$	2.1	$	1.2	$	2.0		—	$	0.8	$	0.2	$	0.4	$	0.2
Property metrics(4)
Number of income-producing properties		108		102		94		85		85		80		79		77
GLA, square feet		49.5		45.4		44.3		40.0		40.0		34.9		34.5		32.8
Occupancy, by GLA		99.6%		98.9%		99.1%		99.0%		99.0%		99.7%		98.9%		98.8%
Weighted average lease term, years		6.3		5.9		6.1		6.3		6.5		6.0		6.0		6.1

⁽¹⁾ For definitions of Granite’s non-IFRS measures, refer to the section “NON-IFRS PERFORMANCE MEASURES”.

⁽²⁾ The quarterly financial data reflects fluctuations in revenue, FFO, AFFO, investment properties and total debt primarily from the timing of leasing and development activities, property sales, acquisitions and foreign exchange. Investment properties also fluctuate from the effect of measuring properties at fair value under IFRS. Net income attributable to unitholders primarily fluctuates from fair value gains/losses on investment properties. Explanations for specific changes in the quarterly financial data table above are as follows:

• Q4’20 — Fair value gains on investment properties of $140.8 million were largely attributable to (i) favourable changes in leasing assumptions associated with fair market rent increases as well as compression in discount and terminal capitalization rates for properties across the United States and certain warehouse properties in Germany and the Netherlands resulted from a greater market demand for industrial real estate.

• Q3’20 — Fair value gains on investment properties of $62.1 million were largely attributable to favourable changes in leasing assumptions associated with fair market rent increases as well as compression in discount and terminal capitalization rates for properties located in the GTA, Canada and across the United States as well as compression in discount and terminal capitalization rates for certain of the Trust’s modern warehouse properties in Germany and the Netherlands.

• Q2’20 — Fair value gains on investment properties of $34.5 million were largely attributable to (i) the favourable changes in leasing assumptions associated with fair market rent increases for properties located in

60    Granite REIT 2020

Canada and (ii) the increase in fair value of the recently developed property in Plainfield, Indiana as a result of executing a full building 10-year lease with a new tenant, marginally offset by an increase in discount rates for certain properties located in Austria due to market conditions and the nature of the tenants and properties in this jurisdiction.

• Q1’20 — Fair value gains on investment properties of $36.0 million were attributable to various factors including an increase in fair value for the recently acquired property in Dallas, Texas as a result of market confirmation of capitalization rates favourable to initial acquisition metrics of the forward purchase for this modern e-commerce facility, partially offset by an increase in discount rates for properties located in Austria and Germany due to market conditions and the nature of the properties across these jurisdictions.

• Q4’19 — Net income attributable to unitholders, cash provided by operating activities and FFO included a net $2.0 million ($0.04 per unit) real estate transfer tax ($2.7 million) and related tax recovery ($0.7 million) which resulted from an internal reorganization.

• Q3’19 — Fair value gains on investment properties of $78.2 million were largely attributable to (i) a compression in discount or terminal capitalization rates for certain properties primarily located in Canada and the United States and, to a lesser extent, in Europe, which resulted from the continued market demand for industrial real estate and (ii) the favourable changes in leasing assumptions associated with fair market rent increases for certain properties located in North America.

• Q2’19 — Revenue, net income attributable to unitholders, cash provided by operating activities and FFO included a $0.6 million lease termination and close-out fee in revenue in connection with a tenant having vacated a property. FFO used to calculate FFO payout ratio and AFFO payout ratio excludes the $0.6 million lease termination and close-out fee as this revenue can be a source of variance between periods.

• Q1’19 — Revenue, net income attributable to unitholders, cash provided by operating activities and FFO included $0.3 million of lease termination and close-out fee in revenue in connection with a tenant having vacated a property. FFO used to calculate FFO payout ratio and AFFO payout ratio excludes the $0.3 million lease termination and close-out fee as this revenue can be a source of variance between periods.

⁽³⁾ In the current year periods AFFO was calculated by deducting maintenance or improvement capital expenditures, leasing commissions and tenant allowances incurred whereas in prior year periods AFFO was calculated by deducting maintenance or improvement capital expenditures, leasing commissions and tenant allowances paid. The AFFO metrics in the comparative periods have been updated to conform to the current year’s presentation. AFFO as well as basic and diluted AFFO per unit for the three months ended December 31, 2019 were previously reported as $46.7 million and $0.89 per unit, respectively. AFFO as well as basic and diluted AFFO per unit for the year ended December 31, 2019 were previously reported as $172.8 million and $3.53 per unit, respectively. Both methods of calculation are in accordance with the REALPAC White Paper (see “NON-IFRS PERFORMANCE MEASURES”). AFFO for the three months and year ended December 31, 2020 have been adjusted to exclude leasing commissions incurred on the lease-up of new development properties in accordance with the REALPAC White Paper (see “NON-IFRS PERFORMANCE MEASURES”). Leasing commissions incurred in the three month periods ended December 31, 2020 exclude $0.3 million of leasing commissions incurred on the lease-up of a recently acquired property in Memphis, Tennessee. Leasing commissions incurred in the year ended December 31, 2020 exclude $1.9 million of leasing commissions incurred on the lease-up of a recently completed development property in Plainfield, Indiana in the second quarter of 2020, $0.5 million of leasing commissions incurred on the lease-up of a recently acquired property in Groveport, Ohio and $0.3 million of leasing commissions incurred on the lease-up of a recently acquired property in Memphis, Tennessee as previously mentioned and deemed related to the overall acquisition costs.

⁽⁴⁾ Excludes properties held for sale which are classified as assets held for sale on the combined balance sheet as at the respective quarter-end.

⁽⁵⁾ Total debt includes lease obligations recognized under IFRS 16, Leases.

FORWARD-LOOKING STATEMENTS

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

Granite REIT 2020    61

future events, performance or results and will not necessarily be accurate indications of whether or the times at or by which such future performance will be achieved. Undue reliance should not be placed on such statements. There can also be no assurance that: Granite’s expectations regarding the impact of the COVID-19 pandemic and government measures to contain it, including with respect to Granite’s ability to weather the impact of COVID-19, the effectiveness of measures intended to mitigate such impact, and Granite’s ability to deliver cash flow stability and growth and create long-term value for unitholders; the expansion and diversification of Granite’s real estate portfolio and the reduction in Granite’s exposure to Magna and the special purpose properties; the ability of Granite to accelerate growth and to grow its net asset value and FFO and AFFO per unit; the ability of Granite to find and integrate satisfactory acquisition, joint venture and development opportunities and to strategically deploy the proceeds from recently sold properties and financing initiatives; Granite’s intended use of the net proceeds of its equity and debenture offerings to fund potential acquisitions and for the other purposes described previously; the potential for expansion and rental growth at the properties in Mississauga, Ontario and Ajax, Ontario and the expected enhancement to the yields of such properties from such potential expansion and rental growth; the expected construction on and development yield of the acquired greenfield site in Houston, Texas; the expected development and construction of an e-commerce and logistics warehouse on recently acquired land in Fort Worth, Texas; the expected construction of the distribution/light industrial facility on the 13-acre site in Altbach, Germany; the completion of construction at the property in Dallas, Texas; the commencement of vertical construction at Granite’s development project in Houston, Texas; the timing of payment of associated unpaid construction costs and holdbacks; Granite’s ability to dispose of any non-core assets on satisfactory terms; Granite’s ability to meet its target occupancy goals; Granite’s ability to secure sustainability or other certifications for any of its properties; the expected impact of the refinancing of the term loans on Granite’s returns and cash flow; and the expected amount of any distributions and distribution increase, can be achieved in a timely manner, with the expected impact or at all. Forward-looking statements and forward-looking information are based on information available at the time and/or management’s good faith assumptions and analyses made in light of Granite’s perception of historical trends, current conditions and expected future developments, as well as other factors Granite believes are appropriate in the circumstances. Given the impact of the COVID-19 pandemic and government measures to contain it, there is inherently more uncertainty associated with our assumptions as compared to prior periods. Forward-looking statements and forward-looking information are subject to known and unknown risks, uncertainties and other unpredictable factors, many of which are beyond Granite’s control, that could cause actual events or results to differ materially from such forward-looking statements and forward-looking information. Important factors that could cause such differences include, but are not limited to, the impact of the COVID-19 pandemic and government measures to contain it, and the resulting economic downturn, on Granite’s business, operations and financial condition; the risk that the pandemic or such measures intensify; the duration of the pandemic and related impacts; the risk of changes to tax or other laws and treaties that may adversely affect Granite REIT’s mutual fund trust status under the Income Tax Act (Canada) or the effective tax rate in other jurisdictions in which Granite operates; economic, market and competitive conditions and other risks that may adversely affect Granite’s ability to expand and diversify its real estate portfolio and dispose of any non-core assets on satisfactory terms; and the risks set forth in the “Risk Factors” section in Granite’s AIF for 2020 dated March 3, 2021, filed on SEDAR at www.sedar.com and attached as Exhibit 1 to the Trust’s Annual Report on Form 40-F for the year ended December 31, 2020 filed with the SEC and available online on EDGAR at www.sec.gov, all of which investors are strongly advised to review. The “Risk Factors” section also contains information about the material factors or assumptions underlying such forward-looking statements and forward-looking information.

62    Granite REIT 2020

Forward-looking statements and forward-looking information speak only as of the date the statements and information were made and unless otherwise required by applicable securities laws, Granite expressly disclaims any intention and undertakes no obligation to update or revise any forward-looking statements or forward-looking information contained in this MD&A to reflect subsequent information, events or circumstances or otherwise.

Granite REIT 2020    63