Granite Real Estate Investment Trust and Granite REIT Inc. Announce Proposal to Unwind Stapled Unit Structure
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Insights
The announcement by Granite Real Estate Investment Trust regarding the unwinding of their Stapled Unit structure is a strategic move aimed at streamlining the capital framework, potentially enhancing trading liquidity and broadening the investor base. Simplifying the capital structure typically facilitates deeper understanding and valuation by investors, which can lead to a re-rating of the stock. Particularly in this case, where capital losses have been a consideration in the past, the move suggests an aim for a more straightforward tax and financial reporting process.
A meticulous analysis of the implications of this reorganization on Granite's financial position should include an evaluation of transaction costs, tax implications and the potential impact on stock liquidity. Moreover, it's imperative to observe the market's reception to the proposed changes, which would be reflected in the unit price both prior to and after the reorganization. Investors should be attentive to the terms of the exchange and the consolidation ratio to maintain clarity on their holdings' value.
The stipulation that the reorganization is subject to a two-thirds affirmative vote by holders of both Granite REIT units and Granite GP common shares, as well as the requirement of court approval and customary conditions, including TSX and NYSE approvals, indicates a rigorous legal process. The outcome of this reorganization carries legal weight and showcases corporate governance in action. It is vital for the unitholders to understand the legal intricacies, especially considering that court-approved arrangements can lead to significant alterations in shareholder rights and company structure.
The role of the Supreme Court of British Columbia in granting a final order also underscores the importance of the judiciary in validating such corporate restructurings. Investors should keep an eye on the legal documentation, including the forthcoming Circular, to ascertain the full details of the legal nuances and conditions tied to the reorganization.
From a market perspective, the proposed unwinding action by Granite could realign investor perception and foster parity with other entities within the Canadian real estate investment trust landscape. Historically, complex capital structures like Stapled Units can deter certain investors due to perceived complications in understanding the product. By transitioning to a conventional REIT trust unit structure, Granite may attract a wider array of investors, including funds that have mandates restricting investments in unconventional securities.
The strategic move could potentially enhance Granite's comparability with peers, which may affect its valuation multiples. Investors should monitor competitor reactions and any subsequent market trends, as these could provide a comprehensive view of how the sector might evolve in response to Granite's structural shift.
The Stapled Unit structure was established in 2013 to accord greater flexibility as to the use for Canadian tax purposes of capital losses. Since this time, a significant portion of those losses have now been utilized. As a result of the Reorganization, Granite REIT expects it will be more comparable to other Canadian real estate investment trusts due to its simplified structure, and that certain investors may therefore be more able or willing to invest in Granite REIT units rather than Stapled Units.
Currently, Granite unitholders hold Stapled Units, each of which consists of one Granite REIT unit and one common share of Granite GP. In the Reorganization (i) the two components of each Stapled Unit will be uncoupled, (ii) the common shares of Granite GP currently held by Granite unitholders will be automatically exchanged for fractional Granite REIT units and (iii) the Granite REIT units will be consolidated back to the number of Stapled Units outstanding before the exchange occurred.
As a result of the Reorganization, each Granite unitholder will hold a number of Granite REIT units equal to the number of Stapled Units they hold currently, and Granite GP will become a wholly-owned subsidiary of Granite REIT. The Granite REIT units will trade on the Toronto Stock Exchange (the “TSX”) and on the New York Stock Exchange (the “NYSE”) under the current ticker symbols for the Stapled Units (being “GRT.UN” and “GRP.U”, respectively).
The Joint Annual General and Special Meetings of holders of Granite REIT units and holders of Granite GP common shares are scheduled to be held virtually on June 6, 2024 to consider, in addition to customary annual meeting matters, the Reorganization, as will be further described in the management information circular/proxy statement (the “Circular”) to be filed by Granite in the coming weeks.
The Reorganization will be effected by way of a court-approved plan of arrangement under the Business Corporations Act (
The Reorganization is subject to the approval of the holders of Granite REIT units by way of the affirmative vote of not less than two-thirds of the votes cast by holders of Granite REIT units present in person (including online) or by proxy at the Meetings, and the approval of the holders of Granite GP common shares by way of the affirmative vote of not less than two-thirds of the votes cast by holders of Granite GP common shares present in person (including online) or by proxy at the Meetings. In addition, the Reorganization is subject to the satisfaction or waiver of certain customary conditions, including obtaining the approval of the TSX and the NYSE (which will be subject to Granite REIT satisfying customary listing requirements), approval by a final order of the Supreme Court of
The foregoing is qualified in its entirety by the more detailed information that will appear in the Circular. Granite unitholders are urged to carefully read the Circular, once available, before making their decision with regards to the Reorganization.
ABOUT GRANITE
Granite is a Canadian-based REIT engaged in the acquisition, development, ownership and management of logistics, warehouse and industrial properties in
OTHER INFORMATION
Copies of financial data and other publicly filed documents about Granite are available through the internet on the Canadian Securities Administrators’ System for Electronic Data Analysis and Retrieval+ (SEDAR+) which can be accessed at www.sedarplus.ca and on the United States Securities and Exchange Commission’s Electronic Data Gathering, Analysis and Retrieval System (EDGAR) which can be accessed at www.sec.gov. For further information, please see our website at www.granitereit.com or contact Teresa Neto, Chief Financial Officer, at 647-925- 7560 or Andrea Sanelli, Associate Director, Legal & Investor Services, at 647-925-7504.
FORWARD-LOOKING STATEMENTS
This press release 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 the Reorganization, Granite’s intention to implement the Reorganization (subject to required approvals and satisfaction or waiver of conditions), listing approval for the Granite REIT units on the TSX and NYSE and satisfaction of applicable requirements, and Granite’s ability to obtain the final order, or the expectations or 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 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. 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. 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 risk of Granite being unable to obtain required approvals or to satisfy conditions to implementing the Reorganization and risks disclosed in the Circular. 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 press release to reflect subsequent information, events or circumstances or otherwise.
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Teresa Neto
Chief Financial Officer
647-925- 7560
or
Andrea Sanelli
Associate Director, Legal & Investor Services
647-925-7504.
Source: Granite Real Estate Investment Trust
FAQ
What is the purpose of the proposed internal reorganization by Granite Real Estate Investment Trust and Granite REIT Inc.?
When is the upcoming Joint Annual General and Special Meetings of holders of Granite's stapled units scheduled to take place?
What will happen to the common shares of Granite GP in the proposed Reorganization?
What are the expected benefits of the Reorganization for Granite REIT?
How will the Granite REIT units be traded after the Reorganization?
