TORONTO, May 14, 2024 (GLOBE NEWSWIRE) — Nexus Industrial REIT (the “REIT”) (TSX: NXR.UN) announced today its results for the first quarter ended March 31, 2024.
“This quarter we continued to make progress as a Canada-focused pure-play industrial REIT” commented Kelly Hanczyk, CEO of Nexus Industrial REIT.
“We completed construction at our Park St. intensification project in Regina on schedule, and the primary tenant has moved in. Our three other development projects remain on track and will begin cash flowing throughout the year. Notably, our Hubrey Rd. expansion in London, Ontario is now leased, effective July 1st.
“As expected, this quarter was impacted by two temporary vacancies as our tenants transitioned to larger spaces within our portfolio, which impacted our payout ratio in the quarter. This presents another exciting growth opportunity for Nexus, as the properties will be re-tenanted shortly, while also freeing up prime development land.
“I am confident in our strategy and look forward to realizing the benefits of our development projects, rent lift, and renewals over the next several years.”
First Quarter 2024 Highlights:
- Net income increased by $40.0 million year over year to $43.6 million, driven by an increase in the fair value of investment properties.
- Net operating income (“NOI”)(1) increased 14.8% year over year to $29.5 million from the acquisition of high-quality, tenanted income-producing industrial properties.
- Completed construction of a new 312,000 sq. ft. built-to-suit distribution centre in Regina, Saskatchewan. The primary tenant took occupancy effective April 1, and the project is expected to deliver a 7.5% return.
- Announced a planned portfolio optimization by divesting $200 million of legacy office, retail, and non-core industrial properties in the second half of 2024.
- Completed the acquisition of a 102,000 sq. ft. industrial property in Kelowna BC for $35 million at a cap rate of 7.1%.
- Upsized its unsecured credit facility by $100 million to $625 million and extended the maturity to March 2027.
- Normalized FFO(1) per unit was $0.163 and Normalized AFFO(1) per unit was $0.134.
- NAV(1) per unit of $13.09 grew $0.96 or 7.9% versus a year ago.
(1) Non-IFRS Financial Measure
Summary of Results
| Summary of Results | |||||
| (In thousands of Canadian dollars, except per unit amounts) | Three months ended March 31 | ||||
| 2024 | 2023 | ||||
Financial Results |
$ | $ | |||
| Property revenues | 41,597 | 37,476 | |||
| Net operating income (NOI) | 29,537 | 25,728 | |||
| Net income (loss) | 43,671 | 3,717 | |||
Financial Highlights |
|||||
| Funds from operations (FFO) (1) | 14,355 | 16,448 | |||
| Normalized FFO (1)(2) | 15,243 | 16,451 | |||
| Adjusted funds from operations (AFFO) (1) | 11,588 | 13,948 | |||
| Normalized AFFO (1)(2) | 12,476 | 13,951 | |||
| Same Property NOI (1) | 23,657 | 24,013 | |||
| Distributions declared (3) | 14,940 | 14,042 | |||
| Weighted average units outstanding (000s) – basic (4) | 93,341 | 87,741 | |||
| Weighted average units outstanding (000s) – diluted (4) | 93,448 | 87,843 | |||
Per unit amounts: |
|||||
| Distributions per unit – basic (3)(4) | 0.160 | 0.160 | |||
| FFO per unit – basic (1)(4) | 0.154 | 0.187 | |||
| Normalized FFO per unit – basic (1)(2)(4) | 0.163 | 0.187 | |||
| AFFO per unit – basic (1)(4) | 0.124 | 0.159 | |||
| Normalized AFFO per unit – basic (1)(2)(4) | 0.134 | 0.159 | |||
| NAV per unit (1) | 13.09 | 12.13 | |||
| Normalized AFFO payout ratio – basic (1)(2)(3) | 119.8 | % | 100.7 | % | |
| Total Indebtedness Ratio | 49.3 | % | 47.3 | % | |
| Estimated spread between industrial portfolio market and in-place rents | 25.3 | % | 21.8 | % | |
| (1) | Non-IFRS Financial Measure | ||||
| (2) | See Appendix A – Non-IFRS Financial Measures | ||||
| (3) | Includes distributions payable to holders of Class B LP Units which are accounted for as interest expense in the consolidated financial statements. | ||||
| (4) | Weighted average number of units includes the Class B LP Units. | ||||
Non-IFRS Measures
Included in the tables above and elsewhere in this news release are non-IFRS financial measures that should not be construed as an alternative to net income / loss, cash from operating activities or other measures of financial performance calculated in accordance with IFRS and may not be comparable to similar measures as reported by other issuers. Certain additional disclosures for these non-IFRS financial measures have been incorporated by reference and can be found on page 3 in the REIT’s Management’s Discussion and Analysis for the three-month ended March 31, 2024, available on SEDAR at www.sedarplus.ca and on the REIT’s website under Investor Relations. See Appendix A of this earnings release for a reconciliation of the non-IFRS financial measures to the primary financial statement measures.
NOI
For the three months ended March 31, 2024, NOI of $29.5 million was $3.8 million higher than Q1 2023, which was primarily due to $4.4 million relating to acquisitions completed subsequent to Q1 2023, $0.2 million relating to higher straight-line rents largely attributed to recent acquisitions, partially offset by $0.7 million relating to dispositions made since Q1 2023, and a reduction in Same Property NOI of $0.4 million principally due to anticipated vacancy in the portfolio totaling approximately $0.5 million, partially offset by rental steps, CPI increase and lease renewals totaling $0.1 million.
Fair value adjustment of investment properties
The fair value adjustment of investment properties for the three months ended March 31, 2024, totaled $15.2 million, which was primarily due to: $8.4 million of fair value gains in respect of properties held for development based on development progress to date relative to the as-completed fair value, and $9.9 million of fair value gains relating to changes in stabilized NOI. Partially offsetting this was $2.9 million of capital expenditures fair valued to zero and $0.2 million of transaction costs due acquisitions completed during the quarter.
Outlook
The REIT is focused on delivering total unitholder return through profitable long-term growth, and by pursing its strategy as a Canada-focused pure-play industrial REIT.
Through the remainder of 2024, the REIT expects to benefit from positive rental fundamentals in the markets in which it has leases expiring. Overall, the REIT anticipates mid-single digit same-property NOI growth in its industrial portfolio for the full year.
In the first quarter of 2024, the REIT finalized construction at its Savage Rd. sports complex in Richmond, BC, and the primary tenant is expected to take occupancy shortly.
In 2024, the REIT expects to benefit from the completion of four significant development projects. Combined, these properties will add annual stabilized NOI of over $10 million when complete:
- In the second quarter of 2024, the REIT completed the Park Street intensification project in Regina, SK. The primary tenant took possession on April 1st, and once fully tenanted, will contribute an estimated yield of 7.5% on total development costs of $48 million.
- In the third quarter of 2024, the REIT expects to complete the 96,000 sq ft Hubrey Rd. expansion project in London, ON, and the 115,000 sq ft Glover Rd. new development in Hamilton, ON. These projects will contribute estimated going-in yields of 8.0% and 5.6% on total development costs of $14 million and $33 million respectfully. The Hubrey Rd. property is leased effective July 1 and the Glover Rd. property is currently being actively marketed.
- In the late fourth quarter of 2024, the REIT expects to complete the 240,000 sq ft Dennis Rd. expansion project in St. Thomas, ON for an existing tenant. This project will contribute a contractual going-in yield of 9.0% on total development costs of approximately $45 million.
The REIT will continue to prioritize unitholder distributions. The REIT believes that its normalized AFFO payout ratio has peaked and will improve to a more sustainable level for the balance of the year.
The REIT is focused on building its industrial portfolio. As a result, the REIT is in the process of disposing of its retail and office properties. In addition, the REIT is examining the potential sale of a group of non-core industrial buildings. In total, this equates to an approximate target of $200 million. The REIT expects the property sales to close in the second half of the year, and the proceeds to be used to reduce the REIT’s debt balance.
Earnings Call
Management of the REIT will host a conference call at 10:00 AM Eastern Standard Time on Wednesday, May 15, 2024 to review the financial results and operations. To participate in the conference call, please dial 647-484-8814 or 1-844-763-8274 (toll free in Canada and the US) at least five minutes prior to the start time and ask to join the Nexus Industrial REIT conference call.
A recording of the conference call will be available until June 15, 2024. To access the recording, please dial 604-674-8052 or 1-855-669-9658 (toll free in Canada and the US) and enter access code 0833.
Annual Meeting Voting Results
Each of the matters set out in the REIT’s management information circular dated April 1, 2024 (the “Circular”) for the annual meeting of unitholders held on May 14, 2024 (the “Meeting”) was approved by the requisite majority of unitholders, and each of the trustee nominees listed in the Circular was elected as a trustee of the REIT. Voting results for the individual trustees are as follows:
| Nominee | Number of Votes For | Percentage of Votes For | Number of Votes Withheld | Percentage of Votes Withheld |
| Floriana Cipollone | 42,901,150 | 99.89% | 47,628 | 0.11% |
| Bradley Cutsey | 42,868,227 | 99.81% | 80,551 | 0.19% |
| Justine Delisle | 42,828,426 | 99.72% | 120,352 | 0.28% |
| Louie DiNunzio | 39,596,881 | 92.20% | 3,351,897 | 7.80% |
| Kelly C. Hanczyk | 42,856,363 | 99.79% | 92,415 | 0.21% |
| Ben Rodney | 42,826,657 | 99.72% | 122,121 | 0.28% |
Final results on all matters considered at the Meeting are reported in the Report of Voting Results as filed on SEDAR (www.sedarplus.ca).
About Nexus Industrial REIT
Nexus is a growth-oriented real estate investment trust focused on increasing unitholder value through the acquisition of industrial properties located in primary and secondary markets in Canada, and the ownership and management of its portfolio of properties. The REIT currently owns a portfolio of 117 properties (including two properties held for development in which the REIT has an 80% interest) comprising approximately 12.5 million square feet of gross leasable area. The REIT has approximately 93,506,000 voting units issued and outstanding, including approximately 68,895,000 REIT Units and approximately 24,611,000 Class B LP Units of subsidiary limited partnerships of Nexus, which are convertible to REIT Units on a one-to-one basis.
Forward Looking Statements
Certain statements contained in this news release constitute forward-looking statements which reflect the REIT’s current expectations and projections about future results. Often, but not always, forward-looking statements can be identified by the use of words such as “plans”, “expects” or “does not expect”, “is expected”, “estimates”, “intends”, “anticipates” or “does not anticipate”, or “believes”, or variations of such words and phrases or state that certain actions, events or results “may”, “could”, “would”, “might” or “will” be taken, occur or be achieved. Forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the REIT to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. Actual results and developments are likely to differ, and may differ materially, from those expressed or implied by the forward-looking statements contained in this news release. Such forward-looking statements are based on a number of assumptions that may prove to be incorrect.
While the REIT anticipates that subsequent events and developments may cause its views to change, the REIT specifically disclaims any obligation to update these forward-looking statements except as required by applicable law. These forward-looking statements should not be relied upon as representing the REIT’s views as of any date subsequent to the date of this news release. There can be no assurance that forward-looking statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. Accordingly, readers should not place undue reliance on forward-looking statements. The factors identified above are not intended to represent a complete list of the factors that could affect the REIT.
Kelly C. Hanczyk, CEO at (416) 906-2379 or
Mike Rawle, CFO at (289) 837-2650.
APPENDIX A – NON-IFRS FINANCIAL MEASURES
| (In thousands of Canadian dollars, except per unit amounts) | Three months ended March 31 | |||||
| 2024 | 2023 | Variance | ||||
| FFO | $ | $ | ||||
| Net income | 43,671 | 3,717 | 39,954 | |||
| Adjustments: | ||||||
| Fair value adjustment | (33,511 | ) | 9,161 | (42,672 | ) | |
| Adjustments for equity accounted joint venture (1) | (42 | ) | 88 | (130 | ) | |
| Distributions on Class B LP Units expensed | 3,938 | 3,178 | 760 | |||
| Amortization of tenant incentives and leasing costs | 273 | 296 | (23 | ) | ||
| Lease principal payments | (4 | ) | (15 | ) | 11 | |
| Amortization of right-of-use assets | 30 | 23 | 7 | |||
| Funds from operations (FFO) | 14,355 | 16,448 | (2,093 | ) | ||
| Weighted average units outstanding (000s) – basic (4) | 93,341 | 87,741 | 5,600 | |||
| FFO per unit – basic | 0.154 | 0.187 | (0.033 | ) | ||
| FFO | 14,355 | 16,448 | (2,093 | ) | ||
| Add: Vendor rent obligation (2) | 628 | 604 | 24 | |||
| Less: Other income (2) | – | (601 | ) | 601 | ||
| Add: Non-recurring personnel transition costs | 260 | – | 260 | |||
| Normalized FFO | 15,243 | 16,451 | (1,208 | ) | ||
| Weighted average units outstanding (000s) – basic (4) | 93,341 | 87,741 | 5,600 | |||
| Normalized FFO per unit – basic | 0.163 | 0.187 | (0.024 | ) | ||
| (In thousands of Canadian dollars, except per unit amounts) | Three months ended March 31 | ||||||
| 2024 | 2023 | Variance | |||||
| AFFO | $ | $ | |||||
FFO |
14,355 | 16,448 | (2,093 | ) | |||
| Adjustments: | |||||||
| Straight-line adjustments ground lease and rent | (1,167 | ) | (1,100 | ) | (67 | ) | |
| Capital reserve (3) | (1,600 | ) | (1,400 | ) | (200 | ) | |
Adjusted Funds from operations (AFFO) |
11,588 | 13,948 | (2,360 | ) | |||
| Weighted average units outstanding (000s) – basic (4) | 93,341 | 87,741 | 5,600 | ||||
| AFFO per unit – basic | 0.124 | 0.159 | (0.035 | ) | |||
| AFFO | 11,588 | 13,948 | (2,360 | ) | |||
| Add: Vendor rent obligation (2) | 628 | 604 | 24 | ||||
| Less: Other income (2) | – | (601 | ) | 601 | |||
| Add: Non-recurring personnel transition costs | 260 | – | 260 | ||||
| Normalized AFFO | 12,476 | 13,951 | (1,475 | ) | |||
| Weighted average units outstanding (000s) – basic (4) | 93,341 | 87,741 | 5,600 | ||||
| Normalized AFFO per unit – basic | 0.134 | 0.159 | (0.025 | ) | |||
| (1) | Adjustment for equity accounted joint venture relates to a fair value adjustment of swaps in place at the joint venture to swap floating rate bankers’ acceptance rates to a fixed rate and fair value adjustment of the joint venture investment property. | ||||||
| (2) | Normalized FFO and Normalized AFFO include adjustments for vendor rent obligation amount related to the REIT’s Richmond, BC property, which are payable from the vendor of the property until the buildout of the property is complete and all tenants are occupying and paying rent. The vendor rent obligation amount is not included in NOI for accounting, but the estimated total amount of vendor rent obligation is recorded in other income. Normalized FFO and Normalized AFFO exclude estimated future vendor rent obligation amounts included in other income in the consolidated statements of income and comprehensive income and include the scheduled quarterly rents receivable in the form of vendor rent obligation. | ||||||
| (3) | Capital reserve includes maintenance capital expenditures, tenant incentives and leasing costs. Reserve amounts are established with reference to building condition reports, appraisals, and internal estimates of tenant renewal, tenant incentives and leasing costs. The REIT believes that a reserve is more appropriate given the fluctuating nature of these expenditures. | ||||||
| (4) | Weighted average number of units includes the Class B LP Units. | ||||||
| (In thousands of Canadian dollars) | Three months ended March 31 | |||||
| 2024 | 2023 | Variance | ||||
| Same Property NOI | $ | $ | ||||
| Property revenues | 41,597 | 37,476 | 4,121 | |||
| Property expenses | (12,060 | ) | (11,748 | ) | (312 | ) |
| NOI | 29,537 | 25,728 | 3,809 | |||
| Add/(Deduct): | ||||||
| Amortization of tenant incentives and leasing costs | 273 | 296 | (23 | ) | ||
| Straight-line adjustments of rent | (1,164 | ) | (1,017 | ) | (147 | ) |
| Acquisitions | (4,752 | ) | (375 | ) | (4,377 | ) |
| Disposals | (202 | ) | (693 | ) | 491 | |
| Termination fees and Other non-recurring items | (35 | ) | 74 | (109 | ) | |
| Same Property NOI | 23,657 | 24,013 | (356 | ) | ||
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