EXHIBIT 2

Audited Combined Financial Statements

of Granite Real Estate Investment Trust

and Granite REIT Inc.

For the years ended December 31, 2020 and 2019

MANAGEMENT’S RESPONSIBILITY FOR FINANCIAL REPORTING

Management of Granite Real Estate Investment Trust and Granite REIT Inc. (collectively the “Trust”) is responsible for the preparation and presentation of the combined financial statements and all information included in the 2020 Annual Report. The combined financial statements were prepared by management in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board and where appropriate, reflect estimates based on management’s best judgement in the circumstances. Financial information as presented elsewhere in the 2020 Annual Report has been prepared by management to ensure consistency with information contained in the combined financial statements. The combined financial statements have been audited by independent auditors and reviewed by the Audit Committees and approved by both the Board of Trustees of Granite Real Estate Investment Trust and the Board of Directors of Granite REIT Inc.

Management is responsible for the development and maintenance of systems of internal accounting and administrative controls of high quality. Such systems are designed to provide reasonable assurance that the financial information is accurate, relevant and reliable and that the Trust’s assets are appropriately accounted for and adequately safeguarded. Management has determined that, as at December 31, 2020 and based on the framework set forth in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, internal control over financial reporting was effective. The Trust’s President and Chief Executive Officer and Chief Financial Officer, in compliance with Section 302 of the U.S. Sarbanes-Oxley Act of 2002 (“SOX”), has provided a SOX-related certification in connection with the Trust’s annual disclosure document in the U.S. (Form 40-F) to the U.S. Securities and Exchange Commission. In accordance with National Instrument 52-109, a similar certification has been provided to the Canadian Securities Administrators.

The Trust’s Audit Committees are appointed by their respective Boards and are comprised solely of outside independent Directors or Trustees. The Audit Committees meet periodically with management, as well as with the independent auditors, to satisfy themselves that each is properly discharging its responsibilities to review the combined financial statements and the independent auditors’ report and to discuss significant financial reporting issues and auditing matters. The Audit Committees report their findings to the Boards for consideration when approving the combined financial statements for issuance to the stapled unitholders.

The combined financial statements and the effectiveness of internal control over financial reporting have been audited by Deloitte LLP, the independent auditors, in accordance with Canadian generally accepted auditing standards and the standards of the Public Company Accounting Oversight Board (United States) on behalf of the stapled unitholders. The Auditors’ Reports outline the nature of their examination and their opinion on the combined financial statements of the Trust and the effectiveness of the Trust’s internal control over financial reporting. The independent auditors have full and unrestricted access to the Audit Committees.

Kevan Gorrie	Teresa Neto
President and Chief Executive Officer	Chief Financial Officer

Toronto, Canada,

March 3, 2021

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Trustees and Unitholders of Granite Real Estate Investment Trust and the Board of Directors and Shareholders of Granite REIT Inc.

Opinion on the Financial Statements

We have audited the accompanying combined balance sheets of Granite Real Estate Investment Trust and subsidiaries and Granite REIT Inc. (collectively, the “Trust”), as of December 31, 2020 and December 31, 2019, the related combined statements of net income, comprehensive income, unitholders’ equity and cash flows, for each of the two years in the period ended December 31, 2020, and the related notes, (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Trust as of December 31, 2020 and 2019, and its financial performance and its cash flows for each of the two years in the period ended December 31, 2020, in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Trust’s internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 3, 2021 expressed an unqualified opinion on the Trust’s internal control over financial reporting.

Basis for Opinion

These financial statements are the responsibility of the Trust’s management. Our responsibility is to express an opinion on the Trust’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Trust in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

66    Granite REIT 2020

Fair Value of Investment Properties – Refer to Notes 2(d), 2(o) Estimates and Assumptions (i) and 4 of the Financial Statements

Critical Audit Matter Description

The Trust has elected the fair value model for all investment properties and, accordingly, measures all investment properties at fair value subsequent to initial recognition on the balance sheet. The Trust primarily uses a discounted cash flow model to estimate the fair value of investment properties. 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.

While there are several assumptions that are required to determine the fair value of all investment properties, the critical assumptions with the highest degree of subjectivity and impact on fair values are the expected future market rental rates, discount rates and capitalization rates, otherwise referred to herein as terminal capitalization rates. Auditing these critical assumptions required a high degree of auditor judgment as the estimations made by management contain significant measurement uncertainty. This resulted in an increased extent of audit effort, including the need to involve our fair value specialists.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to the expected future market rental rates, discount rates and terminal capitalization rates used to determine the fair value of the investment properties included the following, among others:

• Evaluated the effectiveness of controls over determining investment properties’ fair value, including those over the determination of the expected future market rental rates, the discount rates and terminal capitalization rates.

• Evaluated the reasonableness of management’s forecast of expected future market rental rates by comparing management’s forecasts with historical results, internal communications to management and the Board of Directors and contractual information, where applicable.

• With the assistance of our fair value specialists, evaluated the reasonableness of management’s forecast of expected future market rental rates, discount rates and terminal capitalization rates by considering recent market transactions and industry surveys.

/s/ Deloitte LLP

Chartered Professional Accountants

Licensed Public Accountants

Toronto, Canada

March 3, 2021

We have served as the Trust’s auditor since 2012.

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Trustees and Unitholders of Granite Real Estate Investment Trust and the Board of Directors and Shareholders of Granite REIT Inc.

Opinion on Internal Control over Financial Reporting

We have audited the internal control over financial reporting of Granite Real Estate Investment Trust and subsidiaries and Granite REIT Inc. (collectively, the “Trust”) as of December 31, 2020, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Trust maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control – Integrated Framework (2013) issued by COSO.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the combined financial statements as at and for the year ended December 31, 2020, of the Trust and our report dated March 3, 2021, expressed an unqualified opinion on those financial statements.

Basis for Opinion

The Trust’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Trust’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Trust in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed 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. A company’s internal control over financial reporting 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 assets of the company; (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 receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ Deloitte LLP

Chartered Professional Accountants

Licensed Public Accountants

Toronto, Canada

March 3, 2021

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Combined Balance Sheets

(Canadian dollars in thousands)

As at December 31,	Note		2020		2019
ASSETS
Non-current assets:
Investment properties		4	$	5,855,583	$	4,457,899
Construction funds in escrow		6		8,402		16,767
Deferred tax assets		14(c)		4,730		4,057
Fixed assets, net				3,290		2,119
Cross currency interest rate swap		8(b)		28,676		—
Other assets		6		948		1,273
				5,901,629		4,482,115
Current assets:
Other receivable		7		—		11,650
Accounts receivable				6,746		7,812
Income taxes receivable				915		315
Prepaid expenses and other				6,902		3,387
Cash and cash equivalents		16(d)		831,280		298,677
Total assets			$	6,747,472	$	4,803,956
LIABILITIES AND EQUITY
Non-current liabilities:
Unsecured debt, net		8(a)	$	1,928,252	$	1,186,994
Cross currency interest rate swaps		8(b)		97,311		30,365
Long-term portion of lease obligations		9		32,944		32,426
Deferred tax liabilities		14(c)		392,841		320,972
				2,451,348		1,570,757
Current liabilities:
Unsecured debt, net		8(a)		249,870		—
Cross currency interest rate swaps		8(b)		16,953		—
Deferred revenue		10		11,276		5,804
Accounts payable and accrued liabilities		10		61,197		50,183
Distributions payable		11		15,422		13,081
Short-term portion of lease obligations		9		829		619
Income taxes payable				18,373		15,402
Total liabilities				2,825,268		1,655,846
Equity:
Stapled unitholders’ equity		12		3,920,069		3,146,143
Non-controlling interests				2,135		1,967
Total equity				3,922,204		3,148,110
Total liabilities and equity			$	6,747,472	$	4,803,956

Commitments and contingencies (note 21)	On behalf of the Boards:
See accompanying notes
	/s/ Kelly Marshall	/s/ Gerald J. Miller
	Director/Trustee	Director/Trustee

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Combined Statements of Net Income

(Canadian dollars in thousands)

Years ended December 31,	Note		2020			2019
Rental revenue		13(a)	$	340,199		$	272,823
Lease termination and close-out fees				—			855
Revenue				340,199			273,678
Property operating costs		13(b)		47,164			35,364
Net operating income				293,035			238,314
General and administrative expenses		13(c)		32,203			31,419
Depreciation and amortization				1,151			906
Interest income				(2,372	)		(9,613	)
Interest expense and other financing costs		13(d)		35,839			29,941
Foreign exchange (gains) losses, net				(3,671	)		1,633
Fair value gains on investment properties, net		4		(273,437	)		(245,442	)
Fair value losses (gains) on financial instruments, net		13(e)		3,402			(1,192	)
Loss on sale of investment properties, net		5		901			3,045
Other expense		13(f)		—			2,675
Income before income taxes				499,019			424,942
Income tax expense		14		69,092			42,667
Net income			$	429,927		$	382,275
Net income attributable to:
Stapled unitholders			$	429,804		$	382,079
Non-controlling interests				123			196
			$	429,927		$	382,275

See accompanying notes

70    Granite REIT 2020

Combined Statements of Comprehensive Income

(Canadian dollars in thousands)

Years ended December 31,	Note			2020			2019
Net income				$	429,927		$	382,275
Other comprehensive income (loss):
Foreign currency translation adjustment(1)					24,839			(173,341	)
Unrealized (loss) gain on net investment hedges, includes income taxes of nil(1)		8	(b)		(45,093	)		77,996
Total other comprehensive loss					(20,254	)		(95,345	)
Comprehensive income				$	409,673		$	286,930
(1)   Items that may be reclassified subsequently to net income if a foreign subsidiary is disposed of or hedges are terminated or no longer assessed as effective (note 2(h)).
Comprehensive income attributable to:
Stapled unitholders				$	409,514		$	286,817
Non-controlling interests					159			113
				$	409,673		$	286,930

See accompanying notes

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Combined Statements of Unitholders’ Equity

(Canadian dollars in thousands)

Year Ended December 31, 2020
	Number of units (000s)			Stapled units			Contributed surplus			Retained earnings			Accumulated other comprehensive income			Stapled unitholders’ equity			Non- controlling interests			Equity
As at January 1, 2020		54,052		$	2,608,050		$	54,654		$	367,249		$	116,190		$	3,146,143		$	1,967		$	3,148,110
Net income		—			—			—			429,804			—			429,804			123			429,927
Other comprehensive (loss) income		—			—			—			—			(20,290	)		(20,290	)		36			(20,254	)
Stapled unit offering, net of issuance costs (note 12(d))		8,096			552,857			—			—			—			552,857			—			552,857
Distributions (note 11)		—			—			—			(165,404	)		—			(165,404	)		(170	)		(165,574	)
Contributions from non-controlling interests		—			—			—			—			—			—			179			179
Units issued under the stapled unit plan (note 12(b))		31			1,977			—			—			—			1,977			—			1,977
Units repurchased for cancellation (note 12(c))		(491	)		(23,690	)		(1,328	)		—			—			(25,018	)		—			(25,018	)
As at December 31, 2020		61,688		$	3,139,194		$	53,326		$	631,649		$	95,900		$	3,920,069		$	2,135		$	3,922,204

Year Ended December 31, 2019
	Number of units (000s)			Stapled units			Contributed surplus			Retained earnings			Accumulated other comprehensive income			Stapled unitholders’ equity			Non- controlling interests			Equity
As at January 1, 2019		45,685		$	2,063,778		$	95,787		$	124,501		$	211,452		$	2,495,518		$	1,467		$	2,496,985
Net income		—			—			—			382,079			—			382,079			196			382,275
Other comprehensive loss		—			—			—			—			(95,262	)		(95,262	)		(83	)		(95,345	)
Stapled unit offering, net of issuance costs (note 12(d))		8,349			502,003			—			—			—			502,003			—			502,003
Distributions (note 11)		—			—			—			(139,331	)		—			(139,331	)		(150	)		(139,481	)
Contributions from non-controlling interests		—			—			—			—			—			—			537			537
Special distribution paid in units and immediately consolidated (note 11)		—			41,128			(41,128	)		—			—			—			—			—
Units issued under the stapled unit plan (note 12(b))		20			1,207			—			—			—			1,207			—			1,207
Units repurchased for cancellation (note 12(c))		(2	)		(66	)		(5	)		—			—			(71	)		—			(71	)
As at December 31, 2019		54,052		$	2,608,050		$	54,654		$	367,249		$	116,190		$	3,146,143		$	1,967		$	3,148,110

See accompanying notes

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Combined Statements of Cash Flows

(Canadian dollars in thousands)

Years ended December 31,	Note		2020			2019
OPERATING ACTIVITIES
Net income			$	429,927		$	382,275
Items not involving operating cash flows		16(a)		(199,581	)		(196,583	)
Leasing commissions paid				(2,953	)		(1,307	)
Tenant allowances paid				(2,019	)		(513	)
Current income tax expense		14(a)		6,591			5,071
Income taxes paid				(5,679	)		(3,009	)
Interest expense				34,048			29,275
Interest paid				(32,654	)		(28,833	)
Changes in working capital balances		16(b)		16,641			(2,945	)
Cash provided by operating activities				244,321			183,431
INVESTING ACTIVITIES
Investment properties:
Property acquisitions		3		(1,045,659	)		(930,878	)
Working capital acquired on acquisitions				(7,006	)		—
Proceeds from disposals, net		4, 5		42,508			85,536
Capital expenditures
— Maintenance or improvements				(5,376	)		(2,889	)
— Developments or expansions				(49,598	)		(27,407	)
— Costs to complete acquired property		4		(8,622	)		—
Construction funds released from (in) escrow		6		8,622			(17,125	)
Mortgage receivable proceeds		5		—			16,845
Fixed asset additions				(1,691	)		(176	)
Cash used in investing activities				(1,066,822	)		(876,094	)
FINANCING ACTIVITIES
Monthly distributions paid				(163,064	)		(136,897	)
Special distribution paid		11		—			(13,710	)
Proceeds from unsecured debentures, net of financing costs		8(a)		994,185			—
Repayment of lease obligations		9		(638	)		(598	)
Settlement of cross currency swap		8(b)		—			(6,825	)
Financing costs paid				(30	)		(452	)
Distributions to non-controlling interests				(170	)		(150	)
Contributions by non-controlling interests				—			225
Proceeds from stapled unit offerings, net of issuance costs		12(d)		552,932			502,003
Repurchase of stapled units		12(c)		(25,018	)		(71	)
Cash provided by financing activities				1,358,197			343,525
Effect of exchange rate changes on cash and cash equivalents				(3,093	)		(10,431	)
Net increase (decrease) in cash and cash equivalents during the year				532,603			(359,569	)
Cash and cash equivalents, beginning of year				298,677			658,246
Cash and cash equivalents, end of year			$	831,280		$	298,677

See accompanying notes

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Notes to Combined Financial Statements

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

1.  NATURE AND DESCRIPTION OF THE TRUST

Effective January 3, 2013, Granite Real Estate Inc. (“Granite Co.”) completed its conversion from a corporate structure to a stapled unit real estate investment trust (“REIT”) structure. All of the common shares of Granite Co. were exchanged, on a one-for-one basis, for stapled units, each of which consists of one unit of Granite Real Estate Investment Trust (“Granite REIT”) and one common share of Granite REIT Inc. (“Granite GP”). Granite REIT is an unincorporated, open-ended, limited purpose trust established under and governed by the laws of the province of Ontario and created pursuant to a Declaration of Trust dated September 28, 2012 and as subsequently amended on January 3, 2013 and December 20, 2017. Granite GP was incorporated on September 28, 2012 under the Business Corporations Act (British Columbia). Granite REIT, Granite GP and their subsidiaries (together “Granite” or the “Trust”) are carrying on the business previously conducted by Granite Co.

The stapled units trade on the Toronto Stock Exchange and on the New York Stock Exchange. The principal office of Granite REIT is 77 King Street West, Suite 4010, P.O. Box 159, Toronto-Dominion Centre, Toronto, Ontario, M5K 1H1, Canada. The registered office of Granite GP is Suite 2600, Three Bentall Centre, 595 Burrard Street, P.O. Box 49314, Vancouver, British Columbia, V7X 1L3, Canada.

The Trust is a Canadian-based REIT engaged in the acquisition, development, ownership and management of logistics, warehouse and industrial properties in North America and Europe.

These combined financial statements were approved by the Board of Trustees of Granite REIT and Board of Directors of Granite GP on March 3, 2021.

2.  SIGNIFICANT ACCOUNTING POLICIES

The accounting policies described below were applied consistently to all periods presented in these combined financial statements.

(a) Basis of Presentation and Statement of Compliance

The combined financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”).

(b) Combined Financial Statements and Basis of Consolidation

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

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

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(c) Trust Units

The stapled units are redeemable at the option of the holder and, therefore, are required to be accounted for as financial liabilities, except where certain exemption conditions are met, in which case redeemable instruments may be classified as equity. The attributes of the stapled units meet the exemption conditions set out in IAS 32, Financial Instruments: Presentation and are, therefore, presented as equity on the combined balance sheets.

(d) Investment Properties

The Trust accounts for its investment properties, which include income-producing properties, properties under development and land held for development, in accordance with IAS 40, Investment Property. For acquired investment properties that meet the definition of a business, the acquisition is accounted for as a business combination (note 2(e)); otherwise they are initially measured at cost including directly attributable expenses. Subsequent to acquisition, investment properties are carried at fair value, which is determined based on available market evidence at the balance sheet date including, among other things, rental revenue from current leases and reasonable and supportable assumptions that represent what knowledgeable, willing parties would assume about rental revenue from future leases less future cash outflows in respect of capital expenditures. Gains and losses arising from changes in fair value are recognized in net income in the period of change.

Income-Producing Properties

The carrying value of income-producing properties includes the impact of straight-line rental revenue (note 2(l)), tenant incentives and deferred leasing costs since these amounts are incorporated in the determination of the fair value of income-producing properties.

When an income-producing property is disposed of, the gain or loss is determined as the difference between the disposal proceeds, net of selling costs, and the carrying amount of the property and is recognized in net income in the period of disposal.

Properties Under Development

The Trust’s development properties are classified as such until the property is substantially completed and available for occupancy. The initial cost of properties under development includes the acquisition cost of the land and direct development or expansion costs, including construction costs, borrowing costs and indirect costs wholly attributable to development. Borrowing costs are capitalized to projects under development or construction based on the average accumulated expenditures outstanding during the period multiplied by the Trust’s average borrowing rate on existing debt. Where borrowings are associated with specific developments, the amount capitalized is the gross borrowing cost incurred on such borrowings less any investment income arising on temporary investment of these borrowings. The capitalization of borrowing costs is suspended if there are prolonged periods that development activity is interrupted. The Trust capitalizes direct and indirect costs, including property taxes and insurance of the development property, if activities necessary to ready the development property for its intended use are in progress. Costs of internal personnel and other indirect costs that are wholly attributable to a project are capitalized as incurred.

If considered reliably measurable, properties under development are carried at fair value. Properties under development are measured at cost if fair value is not reliably measurable. In determining the fair value of properties under development consideration is given to, among other things, remaining construction costs, development risk, the stage of project completion and the reliability of cash inflows after project completion.

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(e) Business Combinations

The Trust accounts for property acquisitions as a business combination if the particular assets and set of activities acquired can be operated and managed as a business in their current state for the purpose of providing a return to the unitholders. In accordance with IFRS 3, Business Combinations, the acquired set of activities and assets in an acquisition must include an input and a substantive process to qualify as a business. IFRS 3 amendments, effective January 1, 2020, provide for an optional concentration test to permit a simplified assessment of whether an acquired set of activities and assets is not a business. The concentration test is met if substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or group of similar identifiable assets. The Trust applies the acquisition method to account for business combinations. The consideration transferred for a business combination is the fair value of the assets transferred, the liabilities incurred to the former owners of the acquiree and the equity interests issued by the Trust. The total consideration includes the fair value of any asset or liability resulting from a contingent consideration arrangement. Identifiable assets acquired as well as liabilities and contingent liabilities assumed in a business combination are initially measured at fair value at the acquisition date.

The Trust recognizes any non-controlling interest in the acquiree on an acquisition-by-acquisition basis, either at fair value or at the non-controlling interest’s proportionate share of the recognized amounts of the acquiree’s identifiable net assets.

Acquisition related costs are expensed as incurred.

Any contingent consideration is recognized at fair value at the acquisition date. Subsequent changes to the fair value of contingent consideration that is recorded as an asset or liability is recognized in net income.

Goodwill is initially measured as the excess of the aggregate of the consideration transferred and the fair value of non-controlling interest over the identifiable net assets acquired. If the consideration transferred is lower than the fair value of the net assets acquired, the difference is recognized in net income.

(f) Assets Held for Sale

Non-current assets (and disposal groups) are classified as held for sale if their carrying amounts will be recovered principally through a sale transaction rather than through continuing use. This condition is satisfied when the asset is available for immediate sale in its present condition, management is committed to the sale and the sale is highly probable to occur within one year.

(g) Foreign Currency Translation

The assets and liabilities of the Trust’s foreign operations are translated into Canadian dollars using exchange rates prevailing at the end of each reporting period. Income and expense items are translated at the average exchange rates for the period, unless exchange rates fluctuate significantly during that period, in which case, for material transactions, the exchange rates at the dates of those transactions are used. Exchange differences arising are recognized in other comprehensive income and accumulated in equity.

In preparing the financial statements of each entity, transactions in currencies other than the entity’s functional currency (foreign currencies) are recognized at the average rates of exchange prevailing in the period. At the end of each reporting period, monetary items denominated in foreign currencies are retranslated at the rates prevailing at that date. Non-monetary items carried at fair value that are denominated in foreign currencies are retranslated at the rates prevailing at the date when the fair value was determined. Non-monetary items that are measured in terms of historical

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cost in a foreign currency are not retranslated. Exchange differences on monetary items are recognized in net income in the period in which they arise except for:

• The effective portion of exchange differences on transactions entered into in order to hedge certain foreign currency risks are recognized in other comprehensive income;

• Exchange differences on monetary items receivable from or payable to a foreign operation for which settlement is neither planned nor likely to occur (therefore forming part of the net investment in the foreign operation) are recognized in other comprehensive income; and

• Exchange differences on foreign currency borrowings related to capitalized interest for assets under construction are recognized in investment properties.

(h) Financial Instruments and Hedging

Financial Assets and Financial Liabilities

The following summarizes the Trust’s classification and measurement basis of its financial assets and liabilities:

	Classification and Measurement Basis
Financial assets
Construction funds in escrow	Amortized Cost
Long-term receivables included in other assets	Amortized Cost
Cross currency interest rate swaps	Fair Value
Other receivable (proceeds receivable associated with a property disposal)	Fair Value
Accounts receivable	Amortized Cost
Foreign exchange derivative contracts	Fair Value
Cash and cash equivalents	Amortized Cost
Financial liabilities
Unsecured debentures, net	Amortized Cost
Unsecured term loans, net	Amortized Cost
Cross currency interest rate swaps	Fair Value
Accounts payable and accrued liabilities	Amortized Cost
Foreign exchange derivative contracts	Fair Value
Distributions payable	Amortized Cost

The Trust recognizes an allowance for expected credit losses (“ECL”) for financial assets measured at amortized cost. The impact of the credit loss modeling process is summarized as follow:

• The Trust did not record an ECL allowance against long-term receivables as historical experience of loss on these balances is insignificant and, based on the assessment of forward-looking information, no significant increases in losses are expected. The Trust will continue to assess the valuation of these instruments.

• The Trust did not record an ECL allowance against accounts receivable and has determined that its internal processes of evaluating each receivable on a specific basis for collectability using historical experience and adjusted for forward-looking information, would appropriately allow the Trust to determine if there are significant increases in credit risk to then record a corresponding ECL allowance.

For financial liabilities measured at amortized cost, the liability is amortized using the effective interest rate method. Under the effective interest rate method, any transaction fees, costs, discounts and premiums directly related to the financial liabilities are recognized in net income over the expected life of the obligation.

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In regards to modifications to financial liabilities, when a financial liability measured at amortized cost is modified or exchanged, and such modification or exchange does not result in derecognition, the adjustment to the amortized cost of the financial liability as a result of the modification or exchange is recognized in net income.

Derivatives and Hedging

Derivative instruments, such as the cross currency interest rate swaps and the foreign exchange forward contracts and collars, are recorded in the combined balance sheet at fair value, including those derivatives that are embedded in financial or non-financial contracts. Changes in the fair value of derivative instruments which are not designated as hedges for accounting purposes are recognized in the combined statements of net income. The Trust utilizes derivative financial instruments from time to time in the management of its foreign currency and interest rate exposures. The Trust’s policy is not to utilize derivative financial instruments for trading or speculative purposes.

The Trust applies hedge accounting to certain derivative and non-derivative financial instruments designated as hedges of net investments in subsidiaries with a functional currency other than the Canadian dollar. Hedge accounting is discontinued prospectively when the hedge relationship is terminated or no longer qualifies as a hedge, or when the hedging item is sold or terminated. In a net investment hedging relationship, the effective portion of foreign exchange gains or losses on the hedging instruments is recognized in other comprehensive income and the ineffective portion is recognized in net income. The amounts recorded in accumulated other comprehensive income are recognized in net income when there is a disposition or partial disposition of the foreign subsidiary.

(i) Cash and Cash Equivalents

Cash and cash equivalents include cash and short-term investments with original maturities of three months or less.

(j) Fixed Assets

Fixed assets include computer hardware and software, furniture and fixtures and leasehold improvements, which are recorded at cost less accumulated depreciation. Depreciation expense is recorded on a straight-line basis over the estimated useful lives of the fixed assets, which typically range from 3 to 5 years for computer hardware and software and 5 to 7 years for other furniture and fixtures. Leasehold improvements are amortized over the term of the applicable lease. Fixed assets also include right-of-use assets identified in accordance with IFRS 16, Leases. Refer to note 2(k) for the measurement basis of right-of-use assets.

(k) Leases

The Trust recognizes a right-of-use asset and a lease obligation at the lease commencement date, in accordance with IFRS 16, Leases. The Trust accounts for its right-of-use assets that do not meet the definition of investment property as fixed assets. The right-of-use asset is initially measured at cost and, subsequently, at cost less any accumulated depreciation and impairment, and adjusted for certain remeasurements of the lease obligation. When a right-of-use asset meets the definition of investment property, it is initially measured at cost and subsequently measured at fair value (note 2(d)).

The lease liability is initially measured at the present value of the lease payments at the commencement date, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, at the Trust’s incremental borrowing rate. Generally, the Trust uses its incremental borrowing rate as the discount rate.

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The lease obligation is subsequently increased by the interest cost on the lease liability and decreased by lease payments made. It is remeasured when there is a change in future lease payments arising from a change in an index or rate, a change in the estimate of the amount expected to be payable under a residual value guarantee or, as appropriate, a change in the assessment of whether a purchase or extension option is reasonably certain to be exercised or a termination option is reasonably certain not to be exercised.

(l) Revenue Recognition

Where Granite has retained substantially all the benefits and risks of ownership of its rental properties, leases with its tenants are accounted for as operating leases. Where substantially all the benefits and risks of ownership of the Trust’s rental properties have been transferred to its tenants, the Trust’s leases are accounted for as finance leases. All of the Trust’s current leases are operating leases.

Revenue from investment properties include base rents earned from tenants under lease agreements, property tax and operating cost recoveries and other incidental income. Rents from tenants may contain rent escalation clauses or free rent periods which are recognized in revenue on a straight-line basis over the term of the lease. The difference between the revenue recognized and the contractual rent is included in investment properties as straight-line rents receivable. In addition, tenant incentives including cash allowances provided to tenants are recognized as a reduction in rental revenue on a straight-line basis over the term of the lease where it is determined that the tenant fixturing has no benefit to the property beyond the existing tenancy. Property tax and operating cost recoveries from tenants are recognized as revenue in the period in which applicable costs are incurred.

(m) Unit-Based Compensation Plans

Incentive Stock Option Plan

Compensation expense for option grants is based on the fair value of the options at the grant date and is recognized over the period from the grant date to the date the award is vested. A liability is recognized for outstanding options based upon the fair value as the Trust is an open-ended trust making its units redeemable. During the period in which options are outstanding, the liability is adjusted for changes in the fair value with such adjustments being recognized as compensation expense in general and administrative expenses in the period in which they occur. The liability balance is reduced as options are exercised and recorded in equity as stapled units along with the proceeds received on exercise.

Executive Deferred Stapled Unit Plan

The executive deferred stapled unit plan is measured at fair value at the date of grant and amortized to compensation expense from the effective date of the grant to the final vesting date. Compensation expense is recognized on a proportionate basis consistent with the vesting features of each tranche of the grant. Compensation expense for executive deferred stapled units granted under the plan is recognized in general and administrative expenses with a corresponding liability recognized based upon the fair value of the Trust’s stapled units as the Trust is an open-ended trust making its units redeemable. During the period in which the executive deferred stapled units are outstanding, for grants with no performance criteria, the liability is adjusted for changes in the market value of the Trust’s stapled unit, and for grants with performance criteria the liability is measured at fair value using the Monte Carlo simulation model (note 12), with both such adjustments being recognized as compensation expense in general and administrative expenses in the period in which they occur. The liability balance is reduced as deferred stapled units are settled for stapled units and recorded in equity.

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Director/Trustee Deferred Share Unit Plan

The compensation expense and a corresponding liability associated with the director/trustee deferred share unit plan is measured based on the market value of the underlying stapled units. During the period in which the awards are outstanding, the liability is adjusted for changes in the market value of the underlying stapled unit, with such positive or negative adjustments being recognized in general and administrative expenses in the period in which they occur. The liability balance is settled for cash when a director/trustee ceases to be a member of the Board.

(n) Income Taxes

Operations in Canada

Granite qualifies as a mutual fund trust under the Income Tax Act (Canada) (the “Act”) and as such the Trust itself will not be subject to income taxes provided it continues to qualify as a REIT for purposes of the Act. A REIT is not taxable and not considered to be a Specified Investment Flow-through Trust provided it complies with certain tests and it distributes all of its taxable income in a taxation year to its unitholders.

The Trust’s qualification as a REIT results in no current or deferred income tax being recognized in the combined financial statements for income taxes related to the Canadian investment properties.

Operations in the United States

The Trust’s investment property operations in the United States are conducted in a qualifying United States REIT (“US REIT”) for purposes of the Internal Revenue Code of 1986, as amended. As a qualifying US REIT, it is not taxable provided it complies with certain tests in addition to the requirement to distribute substantially all of its taxable income.

As a qualifying US REIT, current income taxes on U.S. taxable income have not been recorded in the combined financial statements. However, the Trust has recorded deferred income taxes that may arise on the disposition of its investment properties as the Trust will likely be subject to entity level income tax in connection with such transactions pursuant to the Foreign Investment in Real Property Tax Act.

Operations in Europe

The Trust consolidates certain entities that continue to be subject to income tax.

Income taxes for taxable entities in Europe, as well as other entities in Canada or the United States subject to tax, are recorded as follows:

Current Income Tax

The current income tax expense is determined on the basis of enacted or substantively enacted tax rates and laws at each balance sheet date.

Deferred Income Tax

Deferred income tax is recorded, using the liability method, on temporary differences arising between the tax basis of assets and liabilities and the amounts reported on the combined financial statements. Deferred income tax assets and liabilities are measured at tax rates that are expected to apply to the period when the asset is realized or the liability is settled, based on the tax rates and laws that have been enacted or substantively enacted at the balance sheet date.

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Deferred income tax assets are recognized to the extent that it is probable that deductions, tax credits or tax losses will be utilized.

Each of the current and deferred tax assets and liabilities are offset when they are levied by the same taxation authority in either the same taxable entity or different taxable entities within the same reporting group that settle on a net basis.

(o) Significant Accounting Judgments, Estimates and Assumptions

The preparation of the combined financial statements requires management to make judgments, estimates and assumptions that affect the reported amounts and disclosures made in the financial statements and accompanying notes.

Management believes that the judgments, estimates and assumptions utilized in preparing the combined financial statements are reasonable and prudent; however, actual results could be materially different and require an adjustment to the reported results.

Judgments

The following are the critical judgments that have been made in applying the Trust’s accounting policies and that have the most significant effect on the amounts recognized in the combined financial statements:

(i) Leases

The Trust’s policy for revenue recognition is described in note 2(l). 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.

(ii) Investment properties

The Trust’s policy relating to investment properties is described in note 2(d). 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.

(iii) Income taxes

The Trust applies judgment in determining whether it will continue to qualify as a REIT for both Canadian and U.S. tax purposes for the foreseeable future. However, should it at some point no longer qualify, it would be subject to income tax and would be required to recognize current and deferred income taxes.

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Estimates and Assumptions

The key assumptions concerning the future and other key sources of estimation uncertainty that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities include the following:

(i) 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 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 the actual condition of the properties in making business judgments about lease renewal probabilities, renewal rents and capital expenditures. 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 note 4 for further information on the estimates and assumptions made by management.

(ii) 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, they are determined using valuation techniques including the discounted cash flow method. 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.

(iii) 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, the 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 estimate 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.

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(p) Future Accounting Policy Changes

As at December 31, 2020, there are no new accounting standards issued but not yet applicable to the combined financial statements except for the following:

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.

(q) COVID-19 Pandemic

During the year ended December 31, 2020, the coronavirus disease (“COVID-19”) pandemic has resulted in governments across Granite’s operating markets enacting emergency measures to combat the spread of the virus. These measures, which include the implementation of travel bans, self-imposed quarantine periods and social distancing, have caused material disruption to businesses globally resulting in an economic slowdown. Global equity and capital markets have also experienced significant volatility and weakness during this time. Governments across the globe have reacted with significant monetary and fiscal interventions designed to stabilize economic conditions. Granite is continuing to monitor the impact of the COVID-19 pandemic on its business, liquidity and results of operations.

During the year ended December 31, 2020, there has not been any 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.

Granite continues to review its future cash flow projections and the valuation of its investment properties in light of the COVID-19 pandemic. The carrying value of Granite’s investment properties reflects its best estimate for the highest and best use as at December 31, 2020 (note 4). The duration of the COVID-19 pandemic, and the potential for further waves of new infections in the markets where Granite operates that could lead to the reinstatement of 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.

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3.  ACQUISITIONS

During the years ended December 31, 2020 and 2019, property acquisitions consisted of the following:

2020 Acquisitions

Property	Location		Date acquired		Property purchase price		Transaction costs		Total acquisition cost
Property under development:
Aquamarijnweg 2(1)		Bleiswijk, Netherlands		March 13, 2020	$	35,632	$	145	$	35,777
Income-producing properties:
Oude Graaf 15		Weert, Netherlands		May 1, 2020		31,910		253		32,163
De Kroonstraat 1(2)		Tilburg, Netherlands		July 1, 2020		71,716		710		72,426
Francis Baconstraat 4		Ede, Netherlands		July 1, 2020		21,403		178		21,581
8995 Airport Road		Brampton, ON		September 1, 2020		22,173		593		22,766
555 Beck Crescent		Ajax, ON		September 30, 2020		15,350		407		15,757
8500 Tatum Road(3)		Palmetto, GA		November 12, 2020		105,184		189		105,373
Industrieweg 15		Voorschoten, Netherlands		November 20, 2020		24,577		1,708		26,285
Zuidelijke Havenweg 2		Hengelo, Netherlands		December 4, 2020		46,226		2,882		49,108
Beurtvaartweg 2-4, Sprengenweg 1-2		Nijmegen, Netherlands		December 18, 2020		39,067		2,531		41,598
12 Tradeport Road		Hanover Township, PA		December 22, 2020		174,722		2,212		176,934
250 Tradeport Road		Nanticoke, PA		December 22, 2020		79,776		1,074		80,850
Memphis portfolio (three properties):
4460 E. Holmes Road, 4995 Citation Drive and 8650 Commerce Drive		Memphis, TN, and Southaven, MS		June 18, 2020		111,590		497		112,087
Midwest portfolio (five properties):
6201 Green Pointe Drive South, 8779 Le Saint Drive, 8754 Trade Port Drive and 445 Airtech Parkway		Groveport, OH, Hamilton, OH, West Chester, OH, and Indianapolis, IN		June 18, 2020		177,647		801		178,448
5415 Centerpoint Parkway		Obetz, OH		July 8, 2020		45,092		256		45,348
Mississauga portfolio (four properties):
5600, 5610, 5620 and 5630 Timberlea Boulevard		Mississauga, ON		September 28, 2020		19,450		444		19,894
Development land:
5005 Parker Henderson Road		Fort Worth, TX		June 8, 2020		8,932		332		9,264
					$	1,030,447	$	15,212	$	1,045,659

⁽¹⁾  The development in Bleiswijk, Netherlands was completed in September 2020 and subsequently transferred to income-producing properties. The property purchase price includes a tenant allowance of $6.8 million (€4.4 million) paid in September 2020 associated with the acquisition.

⁽²⁾  Excludes construction costs and holdbacks of $12.4 million (€8.1million) related to a 0.1 million square foot expansion paid during the fourth quarter of 2020.

⁽³⁾  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.

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2019 Acquisitions

Property	Location		Date acquired		Property purchase price		Transaction costs		Total acquisition cost
Income-producing properties:
201 Sunridge Boulevard		Wilmer, TX		March 1, 2019	$	58,087	$	141	$	58,228
3501 North Lancaster Hutchins Road		Lancaster, TX		March 1, 2019		106,120		168		106,288
2020 & 2095 Logistics Drive(1)		Mississauga, ON		April 9, 2019		174,106		146		174,252
1901 Beggrow Street		Columbus, OH		May 23, 2019		71,607		289		71,896
Heirweg 3		Born, Netherlands		July 8, 2019		25,704		1,640		27,344
1222 Commerce Parkway		Horn Lake, MS		August 1, 2019		24,492		231		24,723
831 North Graham Road		Greenwood, IN		October 4, 2019		39,581		40		39,621
100 Clyde Alexander Lane(2)		Pooler, GA		October 18, 2019		62,657		614		63,271
1301 Chalk Hill Road(3)		Dallas, TX		November 19, 2019		269,764		247		270,011
330-366 Stateline Road East		Southaven, MS		December 19, 2019		63,717		38		63,755
440-480 Stateline Road East		Southaven, MS		December 19, 2019		51,643		33		51,676
Development land:
6701, 6702 Purple Sage Road		Houston, TX		July 1, 2019		33,361		510		33,871
					$	980,839	$	4,097	$	984,936

⁽¹⁾  Includes a right-of-use asset related to the ground lease of $20.5 million.

⁽²⁾  The Trust acquired the leasehold interest in this property which resulted in the recognition of a right-of-use asset, including transaction costs, of $63,271. The Trust will acquire freehold title to the property on December 31, 2022.

⁽³⁾  Excludes cash held in escrow at December 31, 2019 to complete construction.

During the year ended December 31, 2020, the transaction costs of $15.2 million (2019 — $4.1 million), which included land transfer taxes and legal and advisory costs were first capitalized to the cost of the respective properties and then subsequently expensed to net fair value gains on investment properties on the combined statements of net income as a result of measuring the properties at fair value.

4.  INVESTMENT PROPERTIES

As at December 31,	2020		2019
Income-producing properties	$	5,786,338	$	4,377,623
Properties under development		31,488		51,310
Land held for development		37,757		28,966
	$	5,855,583	$	4,457,899

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Changes in investment properties are shown in the following table:

Years Ended December 31,	2020									2019
	Income- producing properties			Properties under development			Land held for development			Income- producing properties			Properties under development			Land held for development
Balance, beginning of year	$	4,377,623		$	51,310		$	28,966		$	3,415,786		$	17,009		$	3,984
Maintenance or improvements		3,997			—			—			3,272			—			—
Leasing commissions		3,449			—			—			1,079			—			—
Tenant allowances		1,784			—			—			515			—			—
Developments or expansions		12,582			39,083			458			3,641			27,250			—
Acquisitions (note 3)		1,000,618			35,777			9,264			951,065			8,932			24,939
Costs to complete acquired property (note 6)		8,622			—			—			—			—			—
Disposals (note 5)		(31,276	)		—			—			—			—			—
Transfer to income-producing properties		97,733			(97,733	)		—			—			—			—
Classified as assets held for sale		—			—			—			(61,120	)		—			—
Amortization of straight-line rent		8,842			—			—			5,074			—			—
Amortization of tenant allowances		(5,321	)		—			—			(5,122	)		—			—
Other changes		(16	)		—			—			189			—			—
Fair value gains (losses), net		273,914			(145	)		(332	)		243,351			(135	)		557
Foreign currency translation, net		33,787			3,196			(599	)		(180,107	)		(1,746	)		(514	)
Balance, end of year	$	5,786,338		$	31,488		$	37,757		$	4,377,623		$	51,310		$	28,966

The Trust determines the fair value of an income-producing property based upon, among other things, rental income from current leases and assumptions about rental income from future leases reflecting market conditions and lease renewals at the applicable balance sheet dates, less future cash outflows in respect of such leases. Fair values are primarily determined by discounting the expected future cash flows, generally over a term of 10 years, plus a terminal value based on the application of a capitalization rate to estimated year 11 cash flows. The fair values of properties under development are measured using a discounted cash flow model, net of costs to complete, as of the balance sheet date. The Trust measures its investment properties using valuations prepared by management. The Trust does not measure its investment properties based on valuations prepared by external appraisers but uses such external appraisals as data points, together with other external market information accumulated by management, in arriving at its own conclusions on values. Management uses valuation assumptions such as discount rates, terminal capitalization rates and market rental rates applied in external appraisals or sourced from valuation experts; however, the Trust also uses its historical renewal experience with tenants, its direct knowledge of the specialized nature of 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 during the year.

Refer to note 2(q) for a discussion of the impact of the COVID-19 pandemic on the Trust’s business and operations, including the valuation of investment properties.

Included in investment properties is $27.2 million (2019 — $18.9 million) of net straight-line rent receivables arising from the recognition of rental revenue on a straight-line basis over the lease term.

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Details about contractual obligations to purchase, construct and develop properties can be found in the commitments and contingencies note (note 21).

Tenant minimum rental commitments payable to Granite on non-cancellable operating leases as at December 31, 2020 are as follows:

2021	$	329,686
2022		323,125
2023		289,622
2024		211,997
2025		189,542
2026 and thereafter		1,042,995
	$	2,386,967

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

As at December 31,	2020						2019
	Weighted average(1)		Maximum		Minimum		Weighted average(1)		Maximum		Minimum
Canada
Discount rate		5.71%		6.25%		5.25%		5.90%		8.75%		5.25%
Terminal capitalization rate		5.22%		5.50%		4.75%		5.55%		8.00%		5.00%
United States
Discount rate		6.18%		9.25%		5.00%		6.41%		9.50%		5.00%
Terminal capitalization rate		5.58%		8.50%		4.75%		6.23%		8.75%		5.25%
Germany
Discount rate		6.85%		9.00%		5.50%		6.83%		8.25%		5.70%
Terminal capitalization rate		5.83%		8.25%		4.50%		6.31%		8.75%		5.00%
Austria
Discount rate		8.58%		10.50%		8.25%		7.96%		10.00%		7.00%
Terminal capitalization rate		7.47%		9.75%		7.00%		7.34%		9.75%		6.75%
Netherlands
Discount rate		4.99%		6.25%		4.40%		5.24%		6.00%		4.70%
Terminal capitalization rate		5.58%		7.40%		4.80%		6.14%		7.55%		5.60%
Other
Discount rate		7.32%		7.50%		7.00%		8.25%		10.00%		7.25%
Terminal capitalization rate		6.97%		9.75%		6.00%		8.20%		9.75%		6.25%
Total
Discount rate		6.38%		10.50%		4.40%		6.60%		10.00%		4.70%
Terminal capitalization rate		5.82%		9.75%		4.50%		6.32%		9.75%		5.00%

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

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The table below summarizes the sensitivity of the fair value of income-producing properties to changes in either the discount rate or terminal capitalization rate:

	Discount Rate				Terminal Capitalization Rate
Rate sensitivity	Fair value		Change in fair value		Fair value		Change in fair value
+50 basis points	$	5,571,937	$	(214,401)	$	5,503,884	$	(282,454)
+25 basis points		5,677,809		(108,529)		5,638,929		(147,409)
Base rate		5,786,338		—		5,786,338		—
-25 basis points		5,897,286		110,948		5,947,585		161,247
-50 basis points	$	6,011,034	$	224,696	$	6,125,131	$	338,793

5.  DISPOSITIONS

During the year ended December 31, 2020, Granite disposed of three properties located in Canada and Spain. The disposed properties consist of the following:

Property	Location	Date disposed	Sale price
201 Patillo Road	Tecumseh, ON	September 14, 2020	$	17,000
2032 First Street Louth	St. Catharines, ON	September 14, 2020		6,500
11 Santiago Russinyol Street	Barcelona, Spain	October 23, 2020		7,776
			$	31,276

During the year ended December 31, 2019, Granite disposed of 13 properties located in Canada and the United States. The disposed properties consist of the following:

Property	Location		Date disposed		Sale price
3 Walker Drive		Brampton, ON		January 15, 2019	$	13,380
Iowa properties (four properties):
403 S 8th Street		Montezuma, IA
1951 A Avenue		Victor, IA
408 N Maplewood Avenue		Williamsburg, IA
411 N Maplewood Avenue		Williamsburg, IA		February 25, 2019		22,323
375 Edward Street		Richmond Hill, ON		February 27, 2019		8,050
330 Finchdene Square		Toronto, ON		September 20, 2019		13,150
200 Industrial Parkway		Aurora, ON		November 4, 2019		10,010
Michigan properties (five properties):
1800 Hayes Street		Grand Haven, MI
3501 John F Donnelly Drive		Holland, MI
3601 John F Donnelly Drive		Holland, MI
3575 128th Avenue North		Holland, MI
6151 Bancroft Avenue		Alto, MI		December 4, 2019		38,852
					$	105,765

The gross proceeds of $22.3 million (US$16.9 million) for the four properties in Iowa included a vendor take-back mortgage of $16.8 million (US$12.7 million) which was repaid on June 18, 2019.

During the year ended December 31, 2020, Granite incurred $0.9 million (2019 — $3.0 million) of broker commissions and legal and advisory costs associated with the disposal or planned disposal of the assets held for sale which are included in loss on sale of investment properties on the combined statements of net income. In connection with the disposal of a property in South Carolina in September 2018, on July 22, 2020, Granite settled the associated obligation in cash.

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Upon receipt of the proceeds receivable (note 10), a resulting gain of $0.4 million was realized which is included in the $0.9 million loss on sale of investment properties on the combined statement of net income. For the year ended December 31, 2019, the $3.0 million loss on sale of investment properties also included a $0.4 million gain relating to the adjustment in proceeds receivable associated with the property disposal in South Carolina.

6.  NON-CURRENT ASSETS

Construction Funds In Escrow

On November 19, 2019, Granite acquired a developed property located at 1301 Chalk Hill Road, Dallas, Texas which had outstanding construction work. Consequently, $20.5 million (US$15.5 million) of the purchase price was placed in escrow to pay for the remaining construction costs. The funds are released from escrow as the construction is completed. As at December 31, 2020, $8.4 million (US$6.6 million) remained in escrow (2019 — $16.8 million (US$12.9 million)). As construction is completed, the construction costs are capitalized to the cost of the investment property. During the year ended December 31, 2020, $8.6 million (US$6.3 million) was released from escrow and capitalized to the property (note 4) (2019 — $3.7 million (US$2.6 million)).

Other Assets

As at December 31,	2020		2019
Deferred financing costs associated with the revolving credit facility	$	599	$	885
Long-term receivables		349		388
	$	948	$	1,273

7.  CURRENT ASSETS

Other Receivable

On July 22, 2020, the full amount of the proceeds receivable of $12.1 million (US$9.0 million) associated with the disposal of a property in South Carolina in September 2018 was received. The estimated sale price for the property in 2018 was determined using an income approach that assumed a forecast consumer price index inflation factor at the date of disposition. Accordingly, the proceeds receivable was subject to change and was dependent upon the actual consumer price index inflation factor as at December 31, 2019. As at December 31, 2019, the proceeds receivable was $11.7 million (US$9.0 million).

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8.  UNSECURED DEBT AND CROSS CURRENCY INTEREST RATE SWAPS

(a) Unsecured Debentures and Term Loans, Net

As at December 31,			2020				2019
	Maturity Date		Amortized Cost(1)		Principal issued and outstanding		Amortized Cost(1)		Principal issued and outstanding
2021 Debentures		July 5, 2021	$	249,870	$	250,000	$	249,646	$	250,000
2023 Debentures		November 30, 2023		399,066		400,000		398,746		400,000
2027 Debentures		June 4, 2027		497,179		500,000		—		—
2030 Debentures		December 18, 2030		497,060		500,000		—		—
2024 Term Loan		December 19, 2024		235,419		235,949		239,153		239,816
2026 Term Loan		December 11, 2026		299,528		300,000		299,449		300,000
			$	2,178,122	$	2,185,949	$	1,186,994	$	1,189,816

⁽¹⁾ The amounts outstanding are net of deferred financing costs and, in the case of the term loans, debt modification losses. The deferred financing costs and debt modification losses are amortized using the effective interest method and are recorded in interest expense.

As at December 31,	2020		2019
Unsecured Debentures and Term Loans, Net
Non-current	$	1,928,252	$	1,186,994
Current		249,870		—
	$	2,178,122	$	1,186,994

2021 Debentures

On July 3, 2014, Granite REIT Holdings Limited Partnership (“Granite LP”), a wholly-owned subsidiary of Granite, issued at par $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. Deferred financing costs of $1.6 million were incurred and recorded as a reduction against the principal owing.

The 2021 Debentures are redeemable, in whole or in part, at Granite’s option at any time and from time to time, at a price equal to accrued and unpaid interest plus the greater of (a) 100% of the principal amount of the 2021 Debentures to be redeemed; and (b) the Canada Yield Price. The Canada Yield Price means, in respect of a 2021 Debenture, a price equal to which, if the 2021 Debenture were to be issued at such price on the redemption date, would provide a yield thereon from the redemption date to its maturity date equal to 46.0 basis points above the yield that a non-callable Government of Canada bond, trading at par, would carry if issued on the redemption date with a maturity date of July 5, 2021. Granite also has the option to redeem the 2021 Debentures at par plus any accrued and unpaid interest within one month of the maturity date of July 5, 2021.

On January 4, 2021, the Trust redeemed in full the outstanding $250.0 million aggregate principal amount of the 2021 Debentures (note 22). In conjunction with the redemption, the 2021 Cross Currency Interest Rate Swap was terminated on January 4, 2021 (note 22).

2023 Debentures

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”) at a nominal

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premium. Interest on the 2023 Debentures is payable semi-annually in arrears on May 30 and November 30 of each year. Deferred financing costs of $2.2 million were incurred and recorded as a reduction against the principal owing.

The 2023 Debentures are redeemable, in whole or in part, at Granite’s option at any time and from time to time, at a price equal to accrued and unpaid interest plus the greater of (a) 100% of the principal amount of the 2023 Debentures to be redeemed; and (b) the Canada Yield Price. The Canada Yield Price means, in respect of a 2023 Debenture, a price equal to which, if the 2023 Debenture were to be issued at such price on the redemption date, would provide a yield thereon from the redemption date to its maturity date equal to 62.5 basis points above the yield that a non-callable Government of Canada bond, trading at par, would carry if issued on the redemption date with a maturity date of November 30, 2023. Granite also has the option to redeem the 2023 Debentures at par plus any accrued and unpaid interest within two months of the maturity date of November 30, 2023.

2027 Debentures

On June 4, 2020, Granite LP issued at par $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. Deferred financing costs of $3.0 million were incurred in connection with the issuance of the 2027 Debentures and are recorded as a reduction against the principal owing.

The 2027 Debentures are redeemable, in whole or in part, at Granite’s option at any time and from time to time, at a price equal to accrued and unpaid interest plus the greater of (a) 100% of the principal amount of the 2027 Debentures to be redeemed; and (b) the Canada Yield Price. The Canada Yield Price means, in respect of a 2027 Debenture, a price equal to which, if the 2027 Debenture were to be issued at such price on the redemption date, would provide a yield thereon from the redemption date to its maturity date equal to 65.0 basis points above the yield that a non-callable Government of Canada bond, trading at par, would carry if issued on the redemption date with a maturity date of June 4, 2027. Granite also has the option to redeem the 2027 Debentures at par plus any accrued and unpaid interest within two months of the maturity date of June 4, 2027.

2030 Debentures

On December 18, 2020, Granite LP 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. Deferred financing costs of $3.0 million were incurred in connection with the issuance of the 2030 Debentures and are recorded as a reduction against the principal owing. As at December 31, 2020, deferred financing costs of $0.2 million remain to be paid.

The 2030 Debentures are redeemable, in whole or in part, at Granite’s option at any time and from time to time, at a price equal to accrued and unpaid interest plus the greater of (a) 100% of the principal amount of the 2030 Debentures to be redeemed; and (b) the Canada Yield Price. The Canada Yield Price means, in respect of a 2030 Debenture, a price equal to which, if the 2030 Debenture were to be issued at such price on the redemption date, would provide a yield thereon from the redemption date to its maturity date equal to 39.5 basis points above the yield that a non-callable Government of Canada bond, trading at par, would carry if issued on the redemption date with a maturity date of December 18, 2030. Granite also has the option to redeem the 2030 Debentures at par plus any accrued and unpaid interest within three months of the maturity date of December 18, 2030.

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2024 Term Loan

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. Deferred financing costs of $0.8 million were incurred and are recorded as a reduction against the principal owing. In addition, as a result of the extension in the maturity date in October 2019, Granite recorded a nominal loss in fair value (gains) losses on financial instruments on the combined statement of net income as a result of the debt modification.

In conjunction with the extension, the previously existing cross currency interest rate swap associated with the term facility was terminated on September 24, 2019 and blended into a new cross currency interest rate swap (note 8(b)).

2026 Term Loan

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. Deferred financing costs of $1.5 million were incurred and are recorded as a reduction against the principal owing. In addition, as a result of the extension in the maturity date in November 2019, Granite recorded a loss of $0.7 million in fair value (gains) losses on financial instruments on the combined statement of net income as a result of the debt modification.

In conjunction with the extension, the previously existing cross currency interest rate swap associated with the term facility was settled on November 27, 2019 and a new cross currency interest rate swap was entered into (note 8(b)).

The 2021 Debentures, 2023 Debentures, 2027 Debentures, 2030 Debentures, 2024 Term Loan and 2026 Term Loan rank pari passu with all of Granite LP’s other existing and future senior unsecured indebtedness and are guaranteed by Granite REIT and Granite GP.

(b) Cross Currency Interest Rate Swaps

As at December 31,	2020		2019
Financial asset at fair value
2027 Cross Currency Interest Rate Swap	$	28,676	$	—
Financial liabilities at fair value
2021 Cross Currency Interest Rate Swap	$	16,953	$	3,630
2023 Cross Currency Interest Rate Swap		36,540		24,298
2030 Cross Currency Interest Rate Swap		10,545		—
2024 Cross Currency Interest Rate Swap		25,370		1,202
2026 Cross Currency Interest Rate Swap		24,856		1,235
	$	114,264	$	30,365

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As at December 31,	2020		2019
Financial liabilities at fair value
Non-current	$	97,311	$	30,365
Current		16,953		—
	$	114,264	$	30,365

On July 3, 2014, the Trust entered into a cross currency interest rate swap (the “2021 Cross Currency Interest Rate Swap”) to exchange the 3.788% semi-annual interest payments from the 2021 Debentures for Euro denominated payments at a 2.68% fixed interest rate. In addition, under the terms of the swap, the Trust will pay principal proceeds of €171.9 million in exchange for which it will receive $250.0 million on July 5, 2021. On January 4, 2021, the 2021 Cross Currency Interest Rate Swap was terminated in conjunction with the redemption of the 2021 Debentures (note 22).

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

On September 24, 2019, in conjunction with a refinancing, the Trust entered into a new cross currency interest rate swap (the “2024 Cross Currency Interest Rate Swap”) to exchange 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.

On November 27, 2019, also in conjunction with a refinancing, the Trust entered into a new cross currency interest rate swap (the “2026 Cross Currency Interest Rate Swap”) to exchange 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.

On June 4, 2020, the Trust 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 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.

On December 18, 2020, the Trust 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 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.

The cross currency interest rate swaps are designated as net investment hedges of the Trust’s investments in foreign operations. The effectiveness of the hedges is assessed quarterly. Gains and losses associated with the effective portion of the hedges are recognized in other comprehensive income. For the year ended December 31, 2020, the Trust has assessed the net investment hedge associated with each cross currency interest rate swap, except for the 2021

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Cross Currency Interest Rate Swap (from the period December 18 to December 31, 2020) and a portion of the 2024 Cross Currency Interest Rate Swap, to be effective.

On December 18, 2020, the Trust de-designated the 2021 Cross Currency Interest Rate Swap as a result of the designation of the 2030 Cross Currency Interest Rate Swap. Since the Trust did not employ hedge accounting for the 2021 Cross Currency Interest Rate Swap from December 18, 2020 to December 31, 2020, a fair value loss of less than $0.1 million is recognized in fair value losses (gains) on financial instruments, net (note 13(e)) in the combined statement of net income.

With the refinancing of the 2024 Term Loan in 2019, the Trust has assessed only the foreign exchange movements associated with the fair value change of the 2024 Cross Currency Interest Rate Swap to be effective. Accordingly, the change in fair value relating to foreign exchange movements on the 2024 Cross Currency Interest Rate Swap is recorded in other comprehensive income. For the year ended December 31, 2020, since there is no effective hedge for the interest and other movements associated with the fair value change of the 2024 Cross Currency Interest Rate Swap, a fair value loss of $5.9 million is recognized in fair value losses (gains) on financial instruments, net (note 13(e)) in the combined statement of net income.

The Trust has elected to record the differences resulting from the lower interest rates associated with the cross currency interest rate swaps in the combined statements of net income.

9.  LEASE OBLIGATIONS

As at December 31, 2020, the Trust had leases for the use of office space, office and other equipment, and ground leases for the land upon which four income-producing properties in Europe and Canada are situated. The Trust recognized these leases as right-of-use assets and recorded related lease liability obligations. During the year ended December 31, 2020, Granite recorded an additional right-of-use asset and related lease obligation of $0.6 million for office space in the United States.

Future minimum lease payments relating to the right-of-use assets as at December 31, 2020 in aggregate for the next five years and thereafter are as follows:

2021	$	829
2022		554
2023		269
2024		258
2025		269
2026 and thereafter		31,594
	$	33,773

During the year ended December 31, 2020, the Trust recognized $1.6 million (2019 — $1.3 million) of interest expense, related to lease obligations (note 13(d)).

10. CURRENT LIABILITIES

Deferred Revenue

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

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Bank Indebtedness

On February 1, 2018, the Trust entered into an unsecured revolving credit facility in the amount of $500.0 million that is available by way of Canadian dollar, US dollar or Euro denominated loans or letters of credit and matures on February 1, 2023. The Trust has the option to extend the maturity date by one year to February 1, 2024 subject to the agreement of lenders in respect of a minimum of 66 2/3% of the aggregate amount committed under the facility. The credit facility provides the Trust with the ability to increase the amount of the commitment by an additional aggregate principal amount of up to $100.0 million with the consent of the participating lenders. As at December 31, 2020, the Trust had no amounts drawn (2019 — nil) from the credit facility and $1.0 million (2019 — $1.0 million) in letters of credit issued against the facility.

Accounts Payable and Accrued Liabilities

As at December 31,	2020		2019
Accounts payable	$	9,876	$	6,840
Tenant security deposits		6,793		3,978
Employee unit-based compensation		7,118		5,586
Trustee/director unit-based compensation		5,219		3,301
Accrued salaries, incentives and benefits		5,783		5,416
Accrued interest payable		7,956		6,507
Accrued construction payable		6,285		5,933
Accrued professional fees		2,620		3,822
Accrued property operating costs		8,878		6,376
Accrual associated with a property disposal (note 7)		—		1,944
Other accrued liabilities		669		480
	$	61,197	$	50,183

In connection with the disposal of a property in South Carolina in September 2018, Granite retained an obligation to make certain repairs to the building. Accordingly, a liability was recorded at the time the property was disposed of, as determined using a third-party report. On July 22, 2020 in conjunction with the receipt of the proceeds receivable for this property disposal (note 7), Granite settled the obligation of $2.0 million in cash for $1.6 million.

11. DISTRIBUTIONS TO STAPLED UNITHOLDERS

Total distributions declared to stapled unitholders in the year ended December 31, 2020 were $165.4 million (2019 — $139.3 million) or $2.91 per stapled unit (2019 — $2.81 per stapled unit).

Distributions payable at December 31, 2020 of $15.4 million (25.0 cents per stapled unit), representing the December 2020 monthly distribution, were paid on January 15, 2021. Distributions payable at December 31, 2019 of $13.1 million were paid on January 15, 2020 and represented the December 2019 monthly distribution.

Subsequent to December 31, 2020, 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.

Granite paid a special distribution on January 15, 2019 of $1.20 per stapled unit, which comprised of 30.0 cents per unit payable in cash of $13.7 million and 90.0 cents per unit payable by the

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issuance of stapled units. Immediately following the issuance of the stapled units, the stapled units were consolidated such that each unitholder held the same number of stapled units after the consolidation as each unitholder held prior to the special distribution. In January 2019, upon the issuance of the stapled units, the stapled units account increased and contributed surplus decreased by $41.1 million, respectively.

12. STAPLED UNITHOLDERS’ EQUITY

(a) Stapled Units

The stapled units consist of one unit of Granite REIT and one common share of Granite GP. Granite REIT is authorized to issue an unlimited number of units. Granite GP’s authorized share capital consists of an unlimited number of common shares without par value. Each stapled unit is entitled to distributions and/or dividends in the case of Granite GP as and when declared and, in the event of termination of Granite REIT and Granite GP, to the net assets of Granite REIT and Granite GP remaining after satisfaction of all liabilities.

(b) Unit-Based Compensation

Incentive Stock Option Plan

The Incentive Stock Option Plan allows for the grant of stock options or stock appreciation rights to directors, officers, employees and consultants. As at December 31, 2020 and December 31, 2019, there were no options outstanding under this plan.

Director/Trustee Deferred Share Unit Plan

The Trust has two Non-Employee Director Share-Based Compensation Plans (the “DSPs”) which provide for a deferral of up to 100% of each non-employee director’s total annual remuneration, at specified levels elected by each director. The amounts deferred under the DSPs are reflected by notional deferred share units (“DSUs”) whose value at the time that the particular payment to the director is determined reflects the fair market value of a stapled unit. The value of a DSU subsequently appreciates or depreciates with changes in the market price of the stapled units. The DSPs also provide for the accrual of notional distribution equivalents on any distributions paid on the stapled units. Under the DSPs, when a director leaves the Board, the director receives a cash payment at an elected date equal to the value of the accumulated DSUs at such date. There is no option under the DSPs for directors to receive stapled units in exchange for DSUs.

A reconciliation of the changes in the notional DSUs outstanding is presented below:

	2020				2019
	Number (000s)		Weighted Average Grant Date Fair Value		Number (000s)			Weighted Average Grant Date Fair Value
DSUs outstanding, January 1		50	$	48.01		44		$	46.01
Granted		17		67.04		17			55.59
Settled		—		—		(11	)		51.57
DSUs outstanding, December 31		67	$	52.93		50		$	48.01

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Executive Deferred Stapled Unit Plan

The Executive Stapled Unit Plan (the “Restricted Stapled Unit Plan”) of the Trust provides for the issuance of Restricted Share Units (“RSUs”) and Performance Share Units (“PSUs”) and is designed to provide equity-based compensation in the form of stapled units to executives and other employees (the “Participants”). The maximum number of stapled units which may be issued pursuant to the Restricted Stapled Unit Plan is 1.0 million. The Restricted Stapled Unit Plan entitles a Participant to receive a stapled unit or a cash payment equal to the market value of the stapled unit, which on any date is the volume weighted average trading price of a stapled unit on the Toronto Stock Exchange or New York Stock Exchange over the preceding five trading days. The form of redemption of the stapled units is determined by the Compensation, Governance and Nominating Committee and is not at the option of the Participant. Vesting conditions in respect of a grant are determined by the Compensation, Governance and Nominating Committee at the time the grant is made and may result in the vesting of more or less than 100% of the number of stapled units. The Restricted Stapled Unit Plan also provides for the accrual of distribution equivalent amounts based on distributions paid on the stapled units. Stapled units are, unless otherwise agreed or otherwise required by the Restricted Stapled Unit Plan, settled within 60 days following vesting.

A reconciliation of the changes in notional stapled units outstanding under the Restricted Stapled Unit Plan is presented below:

	2020					2019
	Number (000s)			Weighted Average Grant Date Fair Value		Number (000s)			Weighted Average Grant Date Fair Value
RSUs and PSUs outstanding, January 1		145		$	55.93		117		$	50.34
New grants(1)		54			67.09		85			61.90
Forfeited		(7	)		73.64		(2	)		64.16
Settled in cash		(33	)		55.70		(35	)		52.91
Settled in stapled units		(31	)		55.70		(20	)		52.91
RSUs and PSUs outstanding, December 31(1)		128		$	59.83		145		$	55.93

⁽¹⁾ New grants include 22.1 RSUs and 26.5 PSUs granted during the year ended December 31, 2020 (2019 — 54.1 RSUs and 24.6 PSUs). Total restricted stapled units outstanding at December 31, 2020 include a total of 73.7 RSUs and 54.6 PSUs granted (2019 — 116.3 RSUs and 29.1 PSUs).

The fair value of the outstanding RSUs was $4.6 million at December 31, 2020 and is based on the market price of the Trust’s stapled unit. The fair value is adjusted for changes in the market price of the Trust’s stapled unit and recorded as a liability in the employee unit-based compensation payables (note 10).

The fair value of the outstanding PSUs was $2.5 million at December 31, 2020 and is recorded as a liability in the employee unit-based compensation payables (note 10). The fair value is calculated using the Monte-Carlo simulation model based on the assumptions below as well as a market adjustment factor based on the total unitholder return of the Trust’s stapled units relative to the S&P/TSX Capped REIT Index.

Granite REIT 2020    97

Grant Date	January 1, 2020, January 1, August 12, September 24, 2019 and November 16, 2018
PSUs granted		54,863
Term to expiry		2.0 years
Average volatility rate		42.5%
Weighted average risk free interest rate		0.2%

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

Years ended December 31,	2020		2019
DSPs for trustees/directors(1)	$	1,918	$	1,645
Restricted Stapled Unit Plan for executives and employees		6,198		5,839
Unit-based compensation expense	$8,116		$7,484
Fair value remeasurement expense included in the above:
● DSPs for trustees/directors	$	728	$	568
● Restricted Stapled Unit Plan for executives and employees		1,361		1,321
Total fair value remeasurement expense	$	2,089	$	1,889

⁽¹⁾ In respect of fees mandated and elected to be taken as DSUs.

(c) 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 (2019 —700 stapled units) at an average stapled unit cost of $50.95 for total consideration of $25.0 million (2019 — less than $0.1 million). The difference between the repurchase price and the average cost of the stapled units of $1.3 million (2019 — less than $0.1 million) was recorded to contributed surplus.

(d) Stapled Unit 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. Total costs related to the offering totaled $12.2 million and were recorded as a reduction to stapled unitholders’ equity. The net proceeds received by Granite after deducting the total costs related

98    Granite REIT 2020

to the offering were $275.9 million. As at December 31, 2020, total costs related to the offering of $0.1 million remain to be paid.

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 the exercise of the over-allotment option granted to the underwriters. Total costs related to the offering totaled $12.4 million and were recorded as a reduction to stapled unitholders’ equity. The net proceeds received by Granite after deducting the total costs related to the offering were $276.9 million.

On April 30, 2019, Granite completed an offering of 3,749,000 stapled units at a price of $61.50 per unit for gross proceeds of $230.6 million, including 489,000 stapled units issued pursuant to the exercise of the over-allotment option granted to the underwriters. Total costs related to the offering totaled $10.2 million and were recorded as a reduction to stapled unitholders’ equity. The net proceeds received by Granite after deducting the total costs related to the offering were $220.4 million.

On October 31, 2019, Granite completed an offering of 4,600,000 stapled units at a price of $64.00 per unit for gross proceeds of $294.4 million, including 600,000 stapled units issued pursuant to the exercise of the over-allotment option granted to the underwriters. Total costs relating to the offering totaled $12.8 million and were recorded as a reduction to stapled unitholders’ equity. The net proceeds received by Granite after deducting the total costs related to the offering were $281.6 million.

(e) Accumulated Other Comprehensive Income

Accumulated other comprehensive income consists of the following:

As at December 31,	2020			2019
Foreign currency translation gains on investments in subsidiaries, net of related hedging activities and non-controlling interests(1)	$	188,169		$	159,499
Fair value losses on derivatives designated as net investment hedges		(92,269	)		(43,309	)
	$	95,900		$	116,190

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

13. RENTAL REVENUE, RECOVERIES, COSTS AND EXPENSES

(a) Rental revenue consists of:

Years ended December 31,	2020			2019
Base rent	$	291,714		$	240,345
Straight-line rent amortization		8,842			5,074
Tenant incentive amortization		(5,321	)		(5,122	)
Property tax recoveries		31,439			22,280
Property insurance recoveries		2,640			2,161
Operating cost recoveries		10,885			8,085
	$	340,199		$	272,823

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(b) Property operating costs consist of:

Years ended December 31,	2020		2019
Non-recoverable from tenants:
Property taxes and utilities	$	973	$	1,096
Legal		160		189
Consulting		41		90
Environmental and appraisals		334		511
Repairs and maintenance		698		804
Other		616		558
	$	2,822	$	3,248
Recoverable from tenants:
Property taxes and utilities	$	33,598	$	23,784
Property insurance		2,946		2,391
Repairs and maintenance		3,916		2,733
Property management fees		2,793		2,001
Other		1,089		1,207
	$	44,342	$	32,116
Property operating costs	$	47,164	$	35,364

(c) General and administrative expenses consist of:

Years ended December 31,	2020		2019
Salaries, incentives and benefits	$	15,109	$	13,753
Audit, legal and consulting		3,423		4,268
Trustee/director fees including distributions, revaluations and expenses(1)		2,108		1,976
RSU and PSU compensation expense including distributions and revaluations(1)		6,198		5,839
Other public entity costs		1,986		2,096
Office rents including property taxes and common area maintenance costs		424		379
Capital tax		568		454
Information technology costs		1,045		980
Other		1,342		1,674
	$	32,203	$	31,419

⁽¹⁾ For fair value remeasurement expense amounts see note 12(b).

During the year ended December 31, 2020, Granite incurred $0.2 million of general and administrative expenses relating to COVID-19 (2019 — nil).

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

Years ended December 31,	2020			2019
Interest and amortized issuance costs and modification losses relating to debentures and term loans	$	32,632		$	26,632
Amortization of deferred financing costs and other interest expense and charges		2,229			2,169
Interest expense related to lease obligations (note 9)		1,595			1,300
	$	36,456		$	30,101
Less: Capitalized interest		(617	)		(160	)
	$	35,839		$	29,941

(e) Fair value losses (gains) on financial instruments, net, consist of:

Years ended December 31,	2020			2019
Foreign exchange forward contracts, net (note 17(a))	$	93		$	8
Foreign exchange collar contracts, net (note 17(a))		(2,627	)		—
Losses on term loan debt modifications (note 8(a))		—			752
Cross currency interest rate swaps (note 8(b))		5,936			(1,952	)
	$	3,402		$	(1,192	)

For the year ended December 31, 2020, the fair value loss of $5.9 million is associated with the fair value movements of the 2021 Cross Currency Interest Rate Swap and 2024 Cross Currency Interest Rate Swap (note 8(b)). The Trust did not employ or partially employed hedge accounting for the derivatives and therefore the change in fair value is recognized in fair value losses (gains) on financial instruments, net, in the combined statement of net income (note 8(b)).

For the year ended December 31, 2019, the fair value gain of $2.0 million was associated with the fair value movement of the 2024 Cross Currency Interest Rate Swap. The Trust did not employ or partially employed hedge accounting for the derivative and therefore the change in fair value was recognized in fair value losses (gains) on financial instruments, net, in the combined statement of net income.

(f) During the year ended December 31, 2019, Granite incurred $2.7 million of real estate land transfer tax associated with an internal reorganization.

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14. INCOME TAXES

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

Years ended December 31,	2020			2019
Current income tax:
Current taxes	$	8,802		$	6,069
Current taxes referring to previous periods		(2,472	)		(1,526	)
Withholding taxes and other		261			528
	$	6,591		$	5,071
Deferred income tax:
Origination and reversal of temporary differences	$	176,351		$	41,140
Impact of changes in tax rates		2,941			(1,678	)
Benefits arising from a previously unrecognized tax loss that reduced:
— Current tax expense		(119,283	)		(12	)
— Deferred tax expense		—			(285	)
Withholding taxes on profits of subsidiaries		6			(388	)
Other		2,486			(1,181	)
	$	62,501		$	37,596
Income tax expense	$	69,092		$	42,667

For the year ended December 31, 2020, there was $0.7 million of current tax expense associated with the disposition of a property in Spain. For the year ended December 31, 2019, there was no current tax expense associated with property dispositions.

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

Years ended December 31,	2020			2019
Income before income taxes	$499,019			$424,942
Expected income taxes at the Canadian statutory tax rate of 26.5% (2019 — 26.5%)	$	132,240		$	112,610
Income distributed and taxable to unitholders		(57,791	)		(59,966	)
Net foreign rate differentials		(9,954	)		(7,526	)
Net change in provisions for uncertain tax positions		(784	)		72
Net permanent differences		(115	)		519
Net effect of change in tax rates		2,941			(1,678	)
Withholding taxes and other		2,555			(1,364	)
Income tax expense	$69,092			$42,667

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(c)    Deferred tax assets and liabilities consist of temporary differences related to the following:

As at December 31,	2020			2019
Deferred tax assets:
Investment properties	$	490		$	83
Eligible capital expenditures		2,111			2,270
Other		2,129			1,704
Deferred tax assets	$	4,730		$	4,057
Deferred tax liabilities:
Investment properties	$	396,326		$	323,385
Withholding tax on undistributed subsidiary profits		149			134
Other		(3,634	)		(2,547	)
Deferred tax liabilities	$	392,841		$	320,972

(d)    Changes in the net deferred tax liabilities consist of the following:

Years ended December 31,	2020		2019
Balance, beginning of year	$	316,915	$	298,664
Deferred tax expense recognized in net income		62,501		37,596
Foreign currency translation of deferred tax balances		8,695		(19,345	)
Net deferred tax liabilities, end of year	$	388,111	$	316,915

(e)    Net cash payments of income taxes amounted to $5.7 million for the year ended December 31, 2020 (2019 — $3.0 million) which included $0.1 million of withholding taxes paid (2019 — $0.4 million).

(f)    The Trust conducts operations in a number of countries with varying statutory rates of taxation. Judgment is required in the estimation of income tax expense and deferred income tax assets and liabilities in each of the Trust’s operating jurisdictions. This process involves estimating actual current tax exposure, assessing temporary differences that result from the different treatments of items for tax and accounting purposes, assessing whether it is more likely than not that deferred income tax assets will be realized and, based on all the available evidence, determining if a provision is required on all or a portion of such deferred income tax assets. The Trust reports a liability for uncertain tax positions (“unrecognized tax benefits”) taken or expected to be taken in a tax return. The Trust recognizes interest and penalties, if any, related to unrecognized tax benefits in income tax expense.

As at December 31, 2020, the Trust had $11.6 million (2019 — $11.4 million) of unrecognized income tax benefits, including $0.3 million (2019 — $0.3 million) related to accrued interest and penalties, all of which could ultimately reduce the Trust’s effective tax rate should these tax benefits become recognized. The Trust believes that it has adequately provided for reasonably foreseeable outcomes related to tax examinations and that any resolution will not have a material effect on the combined financial position, results of operations or cash flows. However, the Trust cannot predict with any level of certainty the exact nature of any future possible outcome.

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A reconciliation of the beginning and ending amounts of unrecognized tax benefits is as follows:

As at December 31,	2020			2019
Unrecognized tax benefits balance, beginning of year	$	11,422		$	13,197
Decreases for tax positions of prior years		(2,370	)		(3,056	)
Increases for tax positions of current year		1,766			2,090
Foreign currency impact		750			(809	)
Unrecognized tax benefits balance, end of year	$	11,568		$	11,422

It is reasonably possible that the gross unrecognized tax benefits, as of December 31, 2020, could decrease in the next 12 months. The quantum of the decrease could range between a nominal amount and $2.4 million (2019 — a nominal amount and $2.4 million) and relates primarily to tax years becoming statute barred for purposes of future tax examinations by local taxing authorities and the outcome of current tax examinations. For the year ended December 31, 2020, $0.1 million of interest and penalties was recorded (2019 — $0.1 million) as part of the provision for income taxes in the combined statements of net income.

As at December 31, 2020, the following tax years remained subject to examination:

Major Jurisdictions
Canada	2014 through 2020
United States	2017 through 2020
Austria	2015 through 2020
Germany	2014 through 2020
Netherlands	2015 through 2020

As at December 31, 2020, the Trust has approximately $165.2 million of losses and other deductible temporary differences in various tax jurisdictions that the Trust believes is not probable that it will be realized. As a result, no deferred tax asset has been recognized for these losses and other deductible temporary differences as of December 31, 2020. Included in this number are Canadian capital loss carryforwards that do not expire of $116.7 million.

15. SEGMENTED DISCLOSURE INFORMATION

The Trust has one reportable segment — the ownership and rental of industrial real estate as determined by the information reviewed by the chief operating decision maker who is the President and Chief Executive Officer. The following tables present certain information with respect to geographic segmentation:

Revenue

Years ended December 31,	2020			2019
Canada	$	63,233	19%	$	58,952	22%
United States		161,165	47%		108,065	39%
Austria		65,716	19%		63,724	23%
Germany		26,924	8%		26,455	10%
Netherlands		16,694	5%		10,250	4%
Other Europe		6,467	2%		6,232	2%
	$	340,199	100%	$	273,678	100%

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For the year ended December 31, 2020, revenue from Magna comprised approximately 37% (2019 — 47%) of the Trust’s total revenue.

Investment properties

As at December 31,	2020			2019
Canada	$	1,106,850	19%	$	979,290	22%
United States		2,882,549	49%		2,014,489	45%
Austria		821,260	14%		806,355	18%
Germany		428,504	7%		389,077	9%
Netherlands		550,946	10%		196,701	4%
Other Europe		65,474	1%		71,987	2%
	$	5,855,583	100%	$	4,457,899	100%

16. DETAILS OF CASH FLOWS

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

Years ended December 31,	2020			2019
Straight-line rent amortization	$	(8,842	)	$	(5,074	)
Tenant incentive amortization		5,321			5,122
Unit-based compensation expense (note 12(b))		8,116			7,484
Fair value gains on investment properties		(273,437	)		(245,442	)
Depreciation and amortization		1,151			906
Fair value losses (gains) on financial instruments, net (note 13(e))		3,402			(1,192	)
Loss on sale of investment properties		901			3,045
Amortization of issuance costs and modification losses relating to debentures and term loans		1,024			855
Amortization of deferred financing costs		312			312
Deferred income taxes (note 14(a))		62,501			37,596
Other		(30	)		(195	)
	$	(199,581	)	$	(196,583	)

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

Years ended December 31,	2020		2019
Accounts receivable	$	10,141	$	(3,670	)
Prepaid expenses and other		61		(906	)
Accounts payable and accrued liabilities		844		(639	)
Deferred revenue		5,595		1,800
Restricted cash		—		470
	$	16,641	$	(2,945	)

(c)    Non-cash investing and financing activities

During the year ended December 31, 2020, 31 thousand stapled units (2019 — 20 thousand stapled units) with a value of $2.0 million (2019 — $1.2 million) were issued under the Restricted Stapled Unit Plan (note 12(b)) and are not recorded in the combined statements of cash flows. In addition, the combined statement of cash flows for the year ended December 31, 2019 does not

Granite REIT 2020    105

include the right-of-use asset and lease obligation of $20.5 million associated with the acquisition of the leasehold interest in two Canadian properties (note 3) and the issuance and consolidation of stapled units associated with the special distribution in the amount of $41.1 million (note 11).

(d)    Cash and cash equivalents consist of:

Years ended December 31,	2020		2019
Cash	$	780,979	$	248,499
Short-term deposits		50,301		50,178
	$	831,280	$	298,677

17. FAIR VALUE AND RISK MANAGEMENT

(a) Fair Value of Financial Instruments

The following table provides the measurement basis of financial assets and liabilities as at December 31, 2020 and 2019:

As at December 31,	2020					2019
	Carrying Value			Fair Value		Carrying Value			Fair Value
Financial assets
Construction funds in escrow	$	8,402		$	8,402	$	16,767		$	16,767
Other assets		349	(1)		349		388	(1)		388
Cross currency interest rate swap		28,676			28,676		—			—
Other receivable		—			—		11,650			11,650
Accounts receivable		6,746			6,746		7,812			7,812
Prepaid expenses and other		2,627	(2)		2,627		120	(3)		120
Cash and cash equivalents		831,280			831,280		298,677			298,677
	$	878,080		$	878,080	$	335,414		$	335,414
Financial liabilities
Unsecured debentures, net	$	1,643,175	(4)	$	1,737,185	$	648,392		$	669,090
Unsecured term loans, net		534,947			534,947		538,602			538,602
Cross currency interest rate swaps		114,264	(5)		114,264		30,365			30,365
Accounts payable and accrued liabilities		61,197			61,197		50,156			50,156
Accounts payable and accrued liabilities		—			—		27	(6)		27
Distributions payable		15,422			15,422		13,081			13,081
	$	2,369,005		$	2,463,015	$	1,280,623		$	1,301,321

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

⁽²⁾  Foreign exchange collars included in prepaid expenses.

⁽³⁾ Foreign exchange forward contracts included in prepaid expenses.

⁽⁴⁾  Balance includes current and non-current portions (note 8(a)).

⁽⁵⁾ Balance includes current and non-current portions (note 8(b)).

⁽⁶⁾  Foreign exchange forward contracts included in accounts payable and accrued liabilities.

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The fair values of the Trust’s construction funds in escrow, accounts receivable, cash and cash equivalents, accounts payable and accrued liabilities and distributions payable approximate their carrying amounts due to the relatively short periods to maturity of these financial instruments. The fair value of the long-term receivable included in other assets approximates its carrying amount as the receivable bears interest at rates comparable to current market rates. The fair value of the other receivable associated with proceeds from a 2018 property disposal approximates its carrying amount as the amount is revalued at each reporting period. The fair values of the unsecured debentures are determined using quoted market prices. The fair values of the term loans approximate their carrying amounts as the term loans bear interest at rates comparable to the current market rates. The fair values of the cross currency interest rate swaps and foreign exchange collars are determined using market inputs quoted by their counterparties. The fair value of the foreign exchange forward contracts approximate their carrying values as the asset or liability is revalued at the reporting date.

The Trust periodically purchases foreign exchange collars and forward contracts to hedge specific anticipated foreign currency transactions and to mitigate its foreign exchange exposure on its net cash flows. At December 31, 2020, the Trust did not have any outstanding foreign exchange forward contracts (2019 — seven contracts outstanding). For the year ended December 31, 2020, the Trust recorded a net fair value loss of $0.1 million (2019 — net fair value loss of less than $0.1 million), related to foreign exchange forward contracts (note 13(e)). At December 31, 2020, the Trust held 12 outstanding foreign exchange collar contracts (2019 — nil) with a notional value of US$60.0 million and contracts the Trust to sell US dollars and receive Canadian dollars if specific US dollar exchange rates relative to the Canadian dollar are met. The Trust also held 12 outstanding foreign exchange collar contracts (2019 — nil) with a notional value of €24.0 million and contracts the Trust to sell Euros and receive Canadian dollars if specific Euro exchange rates relative to the Canadian dollar are met. For the year ended December 31, 2020, the Trust recorded a net fair value gain of $2.6 million (2019 — nil), related to the outstanding foreign exchange collar contracts (note 13(e)). The Trust did not employ hedge accounting for these financial instruments.

(b) Fair Value Hierarchy

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

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

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

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

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

As at December 31, 2020	Level 1			Level 2			Level 3
ASSETS AND LIABILITIES MEASURED OR DISCLOSED AT FAIR VALUE
Assets measured at fair value
Investment properties (note 4)	$	—		$	—		$	5,855,583
Cross currency interest rate swap (note 8)		—			28,676			—
Foreign exchange collars included in prepaid expenses and other		—			2,627			—
Liabilities measured or disclosed at fair value
Unsecured debentures, net (note 8)		1,737,185			—			—
Unsecured term loans, net (note 8)		—			534,947			—
Cross currency interest rate swaps (note 8)		—			114,264			—
Net (liabilities) assets measured or disclosed at fair value	$	(1,737,185	)	$	(617,908	)	$	5,855,583

As at December 31, 2019	Level 1			Level 2			Level 3
ASSETS AND LIABILITIES MEASURED OR DISCLOSED AT FAIR VALUE
Assets measured at fair value
Investment properties (note 4)	$	—		$	—		$	4,457,899
Short-term proceeds receivable associated with a property disposal included in accounts receivable (note 7)		—			—			11,650
Foreign exchange forward contracts included in prepaid expenses and other		—			120			—
Liabilities measured or disclosed at fair value
Unsecured debentures, net (note 8)		669,090			—			—
Unsecured term loans, net (note 8)		—			538,602			—
Cross currency interest rate swaps (note 8)		—			30,365			—
Foreign exchange forward contracts included in accounts payable and accrued liabilities		—			27			—
Net (liabilities) assets measured or disclosed at fair value	$	(669,090	)	$	(568,874	)	$	4,469,549

For assets and liabilities that are measured at fair value on a recurring basis, the Trust determines whether transfers between the levels of the fair value hierarchy have occurred by reassessing categorization (based on the lowest level input that is significant to the fair value measurement as a whole) at the end of each reporting period. For the years ended December 31, 2020 and 2019, there were no transfers between the levels.

Refer to note 4, Investment Properties and note 7, Current Assets, for a description of the valuation technique and inputs used in the fair value measurement and for a reconciliation of the fair value measurements of investment properties and proceeds receivable associated with a property disposal which are recognized in Level 3 of the fair value hierarchy.

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(c) Risk Management

The main risks arising from the Trust’s financial instruments are credit, interest rate, foreign exchange and liquidity risks. The Trust’s approach to managing these risks is summarized below:

(i)    Credit risk

The Trust’s financial assets that are exposed to credit risk consist primarily of cash and cash equivalents and accounts receivable.

Cash and cash equivalents include short-term investments, such as term deposits, which are invested in governments and financial institutions with a minimum credit rating of BBB (based on Standard & Poor’s (“S&P”) rating scale) or Baa1 (based on Moody’s Investor Services’ (“Moody’s”) rating scale). Concentration of credit risk is further reduced by limiting the amount that is invested in any one government or financial institution according to its credit rating.

Magna accounts for approximately 37% of the Trust’s rental revenue. Although its operating subsidiaries are not individually rated, Magna International Inc. has an investment grade credit rating from Moody’s, S&P and Dominion Bond Rating Service which mitigates the Trust’s credit risk. The COVID-19 pandemic has created significant uncertainty in the general economy which may impact the ability of tenants to meet their obligations under their leases. The uncertainties arising as a result of COVID-19 did not materially impact the REIT’s risk assessment at December 31, 2020. Substantially all of the Trust’s accounts receivable are collected within 30 days. The balance of accounts receivable past due is not significant.

(ii)    Interest rate risk

As at December 31, 2020, the Trust’s exposure to interest rate risk is limited. Approximately 75% of the Trust’s interest bearing debt consists of fixed rate debt in the form of the 2021 Debentures, the 2023 Debentures, the 2027 Debentures and the 2030 Debentures. After taking into account the related cross currency interest rate swaps, the 2021 Debentures, the 2023 Debentures, the 2027 Debentures and the 2030 Debentures have effective fixed interest rates of 2.68%, 2.43%, 2.964%, and 1.045%, respectively. The remaining 25% of the Trust’s interest bearing debt consists of variable rate debt in the form of the 2024 Term Loan and 2026 Term Loan. After taking into account the related cross currency interest rate swaps, the 2024 Term Loan and 2026 Term Loan have effective fixed interest rates of 0.522% and 1.355%, respectively.

(iii)    Foreign exchange risk

As at December 31, 2020, the Trust is exposed to foreign exchange risk primarily in respect of movements in the Euro and the US dollar. The Trust is structured such that its foreign operations are primarily conducted by entities with a functional currency which is the same as the economic environment in which the operations take place. As a result, the net income impact of currency risk associated with financial instruments is limited as its financial assets and liabilities are generally denominated in the functional currency of the subsidiary that holds the financial instrument. However, the Trust is exposed to foreign currency risk on its net investment in its foreign currency denominated operations and certain Trust level foreign currency denominated assets and liabilities. At December 31, 2020, the Trust’s foreign currency denominated net assets are $4.5 billion primarily in US dollars and Euros. A 1% change in the US dollar and Euro exchange rates relative to the Canadian dollar would result in a gain or loss of approximately $28.1 million and $16.2 million, respectively, to comprehensive income.

Granite generates rental income that is not all denominated in Canadian dollars. Since the financial results are reported in Canadian dollars, the Trust is subject to foreign currency

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fluctuations that could, from time to time, have an impact on the operating results. For the year ended December 31, 2020, a 1% change in the US dollar and Euro exchange rates relative to the Canadian dollar would have impacted revenue by approximately $1.6 million and $1.2 million, respectively.

For the year ended December 31, 2020, the Trust has designated its cross currency interest rate swaps relating to the $900.0 million of unsecured debentures and $535.9 million of unsecured term loans as hedges of its net investment in the European operations (note 8(b)) and has designated its cross currency interest rate swap relating to the $500.0 million of the 2027 Debentures as a hedge of its net investment in the United States operations (note 8(b)).

(iv)    Liquidity risk

Liquidity risk is the risk the Trust will encounter difficulties in meeting its financial obligations as they become due. The Trust may also be subject to the risks associated with debt financing, including the risks that the unsecured debentures, term loans and credit facility may not be able to be refinanced. The Trust’s objectives in minimizing liquidity risk are to maintain prudent levels of leverage on its investment properties, staggering its debt maturity profile and maintaining an investment grade credit rating. In addition, the Declaration of Trust establishes certain debt ratio limits.

The estimated contractual maturities of the Trust’s financial liabilities are summarized below:

	Payments due by year
As at December 31, 2020	Total		2021		2022		2023		2024		2025		Thereafter
Unsecured debentures	$	1,650,000	$	250,000	$	—	$	400,000	$	—	$	—	$	1,000,000
Unsecured term loans	$	535,949		—		—		—		235,949		—		300,000
Cross currency interest rate swaps	$	114,264		16,953		—		36,540		25,370		—		35,401
Interest payments(1):
Unsecured debentures, net of cross currency interest rate swap savings	$	182,546		37,094		29,910		29,910		19,263		19,263		47,106
Unsecured term loans, net of cross currency interest rate swap savings	$	31,504		5,709		5,709		5,709		5,709		4,340		4,328
Accounts payable and accrued liabilities	$	61,197		57,530		3,218		449		—		—		—
Distributions payable	$	15,422		15,422		—		—		—		—		—
	$	2,590,882	$	382,708	$	38,837	$	472,608	$	286,291	$	23,603	$	1,386,835

⁽¹⁾ Represents aggregate interest expense expected to be paid over the term of the debt, on an undiscounted basis, based on actual current interest rates and average foreign exchange rates.

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18. CAPITAL MANAGEMENT

The Trust’s capital structure comprises the total of the stapled unitholders’ equity and debt. The total managed capital of the Trust is summarized below:

As at December 31,	2020		2019
Unsecured debentures, net	$	1,643,175	$	648,392
Unsecured term loans, net		534,947		538,602
Cross currency interest rate swaps, net(1)		85,588		30,365
Total debt		2,263,710		1,217,359
Stapled unitholders’ equity		3,920,069		3,146,143
Total managed capital	$	6,183,779	$	4,363,502

⁽¹⁾ Balance is net of the cross currency interest rate swap asset (note 8(b)).

The Trust manages, monitors and adjusts its capital balances in response to the availability of capital, economic conditions and investment opportunities with the following objectives in mind:

• Compliance with investment and debt restrictions pursuant to the Amended and Restated Declaration of Trust;

• Compliance with existing debt covenants;

• Maintaining investment grade credit ratings;

• Supporting the Trust’s business strategies including ongoing operations, property development and acquisitions;

• Generating stable and growing cash distributions; and

• Building long-term unitholder value.

The Amended and Restated Declaration of Trust contains certain provisions with respect to capital management which include:

• The Trust shall not incur or assume any indebtedness if, after giving effect to the incurring or assumption of the indebtedness, the total indebtedness of the Trust would be more than 65% of the Gross Book Value (as defined in the Amended and Restated Declaration of Trust); and

• The Trust shall not invest in raw land for development, except for (i) existing properties with additional development, (ii) the purpose of renovating or expanding existing properties or (iii) the development of new properties, provided that the aggregate cost of the investments of the Trust in raw land, after giving effect to the proposed investment, will not exceed 15% of Gross Book Value.

At December 31, 2020, the Trust’s combined debt consists of the unsecured debentures, the term loans and the credit facility when drawn, each of which have various financial covenants. These covenants are defined within the trust indenture, the term loan agreements and the credit facility agreement and, depending on the debt instrument, include a total indebtedness ratio, a secured indebtedness ratio, an interest coverage ratio, an unencumbered asset ratio, and a minimum equity threshold. The Trust monitors these provisions and covenants and was in compliance with their respective requirements as at December 31, 2020 and 2019.

Distributions are made at the discretion of the Board of Trustees (the “Board”) and Granite REIT intends to distribute each year all of its taxable income pursuant to its Amended and Restated Declaration of Trust as calculated in accordance with the Income Tax Act. For the fiscal year 2020, the Trust declared a monthly distribution of $0.242 per stapled unit from January to November

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and a monthly distribution of $0.250 per stapled unit for the month of December. The Board determines monthly distribution levels having considered, among other factors, estimated 2020 and 2021 cash generated from operations and capital requirements, the alignment of its current and targeted payout ratios with the Trust’s strategic objectives and compliance with the above noted provisions and financial covenants.

19. RELATED PARTY TRANSACTIONS

For the year ended December 31, 2020, key management personnel include the Trustees/Directors, the President and Chief Executive Officer, the Chief Financial Officer and the Executive Vice President, Head of Global Real Estate. For the year ended December 31, 2019, key management personnel include the Trustees/Directors, the President and Chief Executive Officer, the current Chief Financial Officer, the former Chief Financial Officer and the Executive Vice President, Head of Global Real Estate. Information with respect to the Trustees’/Directors’ fees is included in notes 12(b) and 13(c). The compensation paid or payable to the Trust’s key management personnel was as follows:

Years ended December 31,	2020		2019
Salaries, incentives and short-term benefits	$	4,082	$	5,553
Unit-based compensation expense including fair value adjustments		3,744		3,980
	$	7,826	$	9,533

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20. COMBINED FINANCIAL INFORMATION

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

Balance Sheet	As at December 31, 2020
	Granite REIT		Granite GP		Eliminations/ Adjustments			Granite REIT and Granite GP Combined
ASSETS
Non-current assets:
Investment properties	$	5,855,583						$	5,855,583
Investment in Granite LP(1)		—		25		(25	)		—
Other non-current assets		46,046							46,046
		5,901,629		25		(25	)		5,901,629
Current assets:
Other current assets		14,546		17					14,563
Intercompany receivable(2)		—		13,792		(13,792	)		—
Cash and cash equivalents		830,455		825					831,280
Total assets	$	6,746,630		14,659		(13,817	)	$	6,747,472
LIABILITIES AND EQUITY
Non-current liabilities:
Unsecured debt, net	$	1,928,252						$	1,928,252
Other non-current liabilities		523,096							523,096
		2,451,348							2,451,348
Current liabilities:
Unsecured debt, net		249,870							249,870
Intercompany payable(2)		13,792				(13,792	)		—
Other current liabilities		109,416		14,634					124,050
Total liabilities		2,824,426		14,634		(13,792	)		2,825,268
Equity:
Stapled unitholders’ equity		3,920,044		25					3,920,069
Non-controlling interests		2,160				(25	)		2,135
Total liabilities and equity	$	6,746,630		14,659		(13,817	)	$	6,747,472

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

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

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Balance Sheet	As at December 31, 2019
	Granite REIT		Granite GP		Eliminations/ Adjustments			Granite REIT and Granite GP Combined
ASSETS
Non-current assets:
Investment properties	$	4,457,899						$	4,457,899
Investment in Granite LP(1)		—		21		(21	)		—
Other non-current assets		24,216							24,216
		4,482,115		21		(21	)		4,482,115
Current assets:
Other current assets		23,144		20					23,164
Intercompany receivable(2)		—		11,828		(11,828	)		—
Cash and cash equivalents		298,385		292					298,677
Total assets	$	4,803,644		12,161		(11,849	)	$	4,803,956
LIABILITIES AND EQUITY
Non-current liabilities:
Unsecured debt, net	$	1,186,994						$	1,186,994
Other non-current liabilities		383,763							383,763
		1,570,757							1,570,757
Current liabilities:
Intercompany payable(2)		11,828				(11,828	)		—
Other current liabilities		72,949		12,140					85,089
Total liabilities		1,655,534		12,140		(11,828	)		1,655,846
Equity:
Stapled unitholders’ equity		3,146,122		21					3,146,143
Non-controlling interests		1,988				(21	)		1,967
Total liabilities and equity	$	4,803,644		12,161		(11,849	)	$	4,803,956

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

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

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Income Statement	Year Ended December 31, 2020
	Granite REIT			Granite GP			Eliminations/ Adjustments			Granite REIT and Granite GP Combined
Revenue	$	340,199								$	340,199
General and administrative expenses		32,203									32,203
Interest expense and other financing costs		35,839									35,839
Other costs and expenses, net		42,272									42,272
Share of (income) loss of Granite LP		—			(4	)		4			—
Fair value gains on investment properties, net		(273,437	)								(273,437	)
Fair value losses on financial instruments, net		3,402									3,402
Loss on sale of investment properties		901									901
Income before income taxes		499,019			4			(4	)		499,019
Income tax expense		69,092									69,092
Net income		429,927			4			(4	)		429,927
Less net income attributable to non-controlling interests		127						(4	)		123
Net income attributable to stapled unitholders	$	429,800			4			—		$	429,804

Income Statement	Year Ended December 31, 2019
	Granite REIT			Granite GP			Eliminations/ Adjustments			Granite REIT and Granite GP Combined
Revenue	$	273,678								$	273,678
General and administrative expenses		31,419									31,419
Interest expense and other financing costs		29,941									29,941
Other costs and expenses, net		30,965									30,965
Share of (income) loss of Granite LP		—			(4	)		4			—
Fair value gains on investment properties, net		(245,442	)								(245,442	)
Fair value gains on financial instruments, net		(1,192	)								(1,192	)
Loss on sale of investment properties		3,045									3,045
Income before income taxes		424,942			4			(4	)		424,942
Income tax expense		42,667									42,667
Net income		382,275			4			(4	)		382,275
Less net income attributable to non-controlling interests		200						(4	)		196
Net income attributable to stapled unitholders	$	382,075			4			—		$	382,079

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Statement of Cash Flows	Year Ended December 31, 2020
	Granite REIT			Granite GP			Eliminations/ Adjustments			Granite REIT and Granite GP Combined
OPERATING ACTIVITIES
Net income	$	429,927			4			(4	)	$	429,927
Items not involving operating cash flows		(199,581	)		(4	)		4			(199,581	)
Changes in working capital balances		16,108			533						16,641
Other operating activities		(2,666	)								(2,666	)
Cash provided by operating activities		243,788			533			—			244,321
INVESTING ACTIVITIES
Property acquisitions		(1,045,659	)								(1,045,659	)
Proceeds from disposals, net		42,508									42,508
Investment property capital additions
— Maintenance or improvements		(5,376	)								(5,376	)
— Developments or expansions		(49,598	)								(49,598	)
— Costs to complete acquired property		(8,622	)								(8,622	)
Other investing activities		(75	)								(75	)
Cash used in investing activities		(1,066,822	)		—			—			(1,066,822	)
FINANCING ACTIVITIES
Distributions paid		(163,064	)								(163,064	)
Other financing activities		1,521,261									1,521,261
Cash provided by financing activities		1,358,197			—			—			1,358,197
Effect of exchange rate changes		(3,093	)								(3,093	)
Net increase in cash and cash equivalents during the year	$	532,070			533			—		$	532,603

Statement of Cash Flows	Year Ended December 31, 2019
	Granite REIT			Granite GP			Eliminations/ Adjustments			Granite REIT and Granite GP Combined
OPERATING ACTIVITIES
Net income	$	382,275			4			(4	)	$	382,275
Items not involving operating cash flows		(196,583	)		(4	)		4			(196,583	)
Changes in working capital balances		(2,423	)		(522	)					(2,945	)
Other operating activities		684									684
Cash provided by (used in) operating activities		183,953			(522	)		—			183,431
INVESTING ACTIVITIES
Property acquisitions		(930,878	)								(930,878	)
Proceeds from disposals, net		85,536									85,536
Investment property capital additions
— Maintenance or improvements		(2,889	)								(2,889	)
— Developments or expansions		(27,407	)								(27,407	)
Other investing activities		(456	)								(456	)
Cash used in investing activities		(876,094	)		—			—			(876,094	)
FINANCING ACTIVITIES
Distributions paid		(136,897	)								(136,897	)
Other financing activities		480,422									480,422
Cash provided by financing activities		343,525			—			—			343,525
Effect of exchange rate changes		(10,431	)								(10,431	)
Net decrease in cash and cash equivalents during the year	$	(359,047	)		(522	)		—		$	(359,569	)

116    Granite REIT 2020

21. COMMITMENTS AND CONTINGENCIES

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

(b)    As at December 31, 2020, the Trust’s contractual commitments related to construction and development projects amounted to approximately $76.1 million.

(c)    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 IAS 32, the bonds are not recorded in the combined balance sheet.

The Trust is involved, in the normal course of business, in discussions, and has various letters of intent or conditional agreements, with respect to possible acquisitions of new properties and dispositions of existing properties in its portfolio. None of these commitments or contingencies, individually or in aggregate, would have a material impact on the combined financial statements.

22. SUBSEQUENT EVENTS

(a)    On January 4, 2021, the Trust 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.

(b)    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).

(c)    Subsequent to December 31, 2020, the Trust declared monthly distributions for January and February 2021 of $15.4 million each (note 11).

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