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Rating Action:

Moody's affirms Granite REIT's Baa2 rating, outlook stable

09 Apr 2018

New York, April 09, 2018 -- Moody's Investors Service ("Moody's") affirmed all ratings of Granite Real Estate Investment Trust ("Granite") and its wholly owned subsidiary, Granite REIT Holdings Limited Partnership, including the Baa2 senior unsecured debt rating. The rating outlook is stable.

The following ratings were affirmed:

Issuer: Granite Real Estate Investment Trust

Senior Unsecured Shelf at (P)Baa2

Outlook, Remains Stable

Issuer: Granite REIT Holdings Limited Partnership

BACKED Senior Unsecured Notes at Baa2

BACKED Senior Unsecured Shelf at (P)Baa2

BACKED Senior Subordinate Shelf at (P)Baa3

BACKED Subordinate Shelf at (P)Baa3

Outlook, Remains Stable

RATINGS RATIONALE

Granite's Baa2 senior unsecured rating reflects the REIT's conservative balance sheet and strong credit metrics, including low leverage and high fixed charge coverage. Granite has a high quality pool of assets which are 100% unencumbered. Granite's unencumbered NOI coverage on unsecured interest expense was 4.7x as of year-end 2017, a key credit plus. The REIT has ample liquidity that consists of internally generated cash flow, $300 million in cash on balance sheet and a $500 million line of credit which has 100% availability and expires in 2023. Granite has no debt coming due until 2021 when CAD $250 million in debentures matures. Granite has stated its intent to accelerate its growth in its key markets in North America and Europe which includes the potential for portfolio and/or corporate acquisitions, and the REIT remains committed to maintaining modest leverage levels over the long term.

Granite's operating performance is stable. The REIT owns a portfolio of predominantly industrial, warehouse and logistics properties that generate long-term stable cash flows from lease payments. The lease maturity schedule is well-laddered, with 12% or less of annualized revenue expiring over the next five years. Occupancy is strong at 98.4% as of year-end 2017.

Granite's key credit challenge continues to be its significant tenant concentration with Magna International Inc. (A3 stable), one of the largest automotive parts suppliers in the world. The REIT has taken proactive steps to reduce its exposure to Magna, most recently with the sale of 10 Magna leased properties in January 2018. Following this sale, Magna represented 71% of Granite's year-end 2017 revenues, down from 76% as of year-end 2016. Granite has also reduced its exposure to special-purpose properties to 36% of GLA as of year-end 2017 as a result of this transaction.

The stable outlook reflects Granite's commitment to an unsecured debt capital structure and conservative credit metrics while expanding the portfolio within its existing footprint.

A ratings upgrade would be contingent upon greater tenant diversification with Magna comprising less than 40% of Granite's total revenues, while maintaining net debt/EBITDA closer to 5.5x, fixed charge coverage above 4.0x and secured debt % gross assets at or below 10%. A rating downgrade would be predicated on Granite experiencing a substantive weakening in its credit metrics likely resulting from a significant deterioration in the automotive industry that forces Magna International to close a large number of its properties leased from Granite. In addition, a downgrade would result from maintenance of net debt/EBITDA approaching 6.5x, fixed charge coverage closer to 3.0x or secured debt levels above 15%.

Granite (GRT.UN.TO:TSX; GRP.U:NYSE) is a Canadian-based real estate investment trust engaged in the ownership and management of predominantly industrial, warehouse and logistics properties in North America and Europe. As of December 31, 2017, Granite had total assets of CAD $3.2 billion.

The principal methodology used in these ratings was Global Rating Methodology for REITs and Other Commercial Property Firms published in July 2010. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Griselda Bisono
Asst Vice President - Analyst
Commercial Real Estate Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Nick Levidy
MD - Structured Finance
Commercial Real Estate Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

No Related Data.
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