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Nexus Industrial REIT Announces Third Quarter 2024 Financial Results

Industrial weighting increasing as legacy assets are sold

Net Operating Income grows 11.0% as recent investments yield returns

TORONTO, Nov. 11, 2024 (GLOBE NEWSWIRE) — Nexus Industrial REIT (the “REIT”) (TSX: NXR.UN) announced today its results for the third quarter ended September 30, 2024.

“This quarter we continued to execute against our plan, and I am thrilled with our progress.” said Kelly Hanczyk, CEO of Nexus Industrial REIT.

We sold our Old Montreal office portfolio and have our legacy retail and non-core industrial properties under firm sales contracts that are expected to close by the end of the year. These dispositions strengthen our balance sheet and also advance our strategy as a Canada-focused, pure-play industrial REIT.

“Industrial assets now contribute 94% of our NOI on a proforma basis, and our concentration will be nearly 100% industrial upon closing the remaining dispositions. Combined, we are targeting asset sales of approximately $110 million in the second half of 2024,” continued Mr. Hanczyk.

“We have also resolved two key vacancies and fully leased our new Titan Park property, exceeding business case. We completed construction at our Hubrey Road and Glover Road development projects, and our St. Thomas project remains on track for completion in the first quarter of 2025. Combined, these four developments will add over $10 million of stabilized NOI annually.”

Third Quarter 2024 Highlights:

  • Net loss was $46.0 million driven by net operating income (“NOI”)(1) of $32.6 million, loss on fair value adjustments of Class B LP Units of $47.5 million, loss on fair vale adjustment of derivative financial instruments of $22.2 million and gain on fair value adjustment of investment properties of $11.1 million.
  • NOI increased 11.0% year over year to $32.6 million from the acquisition of high-quality, tenanted income-producing industrial properties, and growth in industrial Same Property NOI which totaled $1.4 million or 5.6% compared to a year ago (1).
  • Completed the sale of six Old Montreal office properties and contracted for the sale of the legacy retail portfolio, three non-core industrial properties, vacant land, and the remaining Old Montreal office properties.
  • Completed construction and tenanted the new 96,000 sq. ft. intensification industrial project in London, ON, and completed construction of the new 115,000 sq. ft. development in Hamilton, ON.
  • Completed the lease-up of the newly constructed 325,000 sq. ft. industrial development in Regina, SK. The property will contribute annual stabilized NOI(1) of $3.8 million, exceeding the original investment plan.
  • Normalized FFO(1) per unit was $0.188 and Normalized AFFO(1) per unit was $0.158, a reduction of $0.010 and $0.007 versus a year ago.
  • NAV(1) per unit of $13.06 grew $0.17 or 1.3% versus a year ago.

Subsequent events:

  • Completed the sale of one office property and one mixed-use industrial property in which the REIT held a 50% ownership interest.

    (1) Non-IFRS Financial Measure

Summary of Results      
       
(In thousands of Canadian dollars, except per unit amounts) Three months ended
September 30,
  Nine months ended
September 30,
  2024   2023     2024   2023  
  $   $     $   $  
FINANCIAL INFORMATION          
Operating Results          
Property revenues 45,529   39,752     131,036   115,647  
Net operating income (NOI) (1) 32,568   29,331     93,722   82,748  
Net (loss) Income (45,991 ) 76,954     41,205   157,893  
           
Funds from operations (FFO) (1) 17,613   18,060     48,544   51,283  
Normalized FFO (1) (2) 17,717   17,887     49,602   51,604  
Adjusted funds from operations (AFFO) (1) 14,795   15,072     40,153   43,120  
Normalized AFFO (1) (2) 14,899   14,899     41,211   43,441  
Distributions declared (3) 15,063   14,477     44,973   42,711  
Same Property NOI (1) 28,012   26,857     72,543   70,727  
Industrial Same Property NOI (1) 26,262   24,858     67,312   65,028  
           
Weighted average units outstanding (000s):          
Basic (4) 94,137   90,452     93,675   88,844  
Diluted (4) 94,313   90,554     93,851   88,946  
           
Per unit amounts:          
Distributions per unit – basic (3) (4) 0.160   0.160     0.480   0.480  
Distributions per unit – diluted (3) (4) 0.160   0.160     0.480   0.480  
           
Normalized FFO per unit – basic (1) (2) (4) 0.188   0.198     0.530   0.581  
Normalized FFO per unit – diluted (1) (2) (4) 0.188   0.198     0.529   0.580  
           
Normalized AFFO per unit – basic (1) (2) (4) 0.158   0.165     0.440   0.489  
Normalized AFFO per unit – diluted (1) (2) (4) 0.158   0.165     0.439   0.488  
           
AFFO payout ratio – basic (1) (3) 101.8%   96.1%     112.0%   99.1%  
Normalized AFFO payout ratio – basic (1) (2) (3) 101.1%   97.2%     109.1%   98.3%  
           
SPNOI Growth % (1) 4.3%   2.5%     2.6%   4.1%  
Industrial same Property NOI Growth % (1) 5.6%   0.5%     3.5%   4.4%  
           
           
As at September 30, 2024 and December 31, 2023 2024   2023        
  $   $        
PORTFOLIO INFORMATION          
Total Portfolio          
Number of Investment Properties(5) 113   116        
Number of Properties Under Development 1   4        
Investment Property Fair Value (excludes assets held for sale) 2,449,960   2,364,027        
Gross leasable area (“GLA”) (in millions of sq. ft.) (at the REIT’s ownership interest) 13.0   12.5        
Industrial occupancy rate – in-place and committed (period-end)(6) 97%   97%        
Weighted average lease term (“WALT”) (years) 6.8   6.9        
Estimated spread between industrial portfolio market and in-place rents 26.3%   29.0%        
           
FINANCING AND CAPITAL INFORMATION          
Financing          
Net debt 1,305,513   1,203,432        
Net Indebtedness Ratio 49.98%   48.90%        
Interest coverage ration (times) 1.60   1.72        
Secured Indebtedness Ratio 28.6%   30.4%        
Unencumbered investment properties as a percentage of investment properties 40.8%   35.6%        
Total assets 2,612,258   2,463,067        
Cash and cash equivalents 7,823   5,918        
Capital          
Total equity (per condensed consolidated financial statements) 1,023,338   1,000,329        
Total equity (including Class B LP Units) 1,229,581   1,199,434        
Total number of Units (in thousands) 94,152   93,201        
NAV per Unit 13.06   12,87        

 

(1) See Non-IFRS Financial Measures.
(2) See Appendix A – Non-IFRS Financial Measures
(3) Includes distributions payable to holders of Class B LP Units which are accounted for as finance expense in the consolidated financial statements.
(4) Weighted average number of units includes Class B LP Units.
(5) Includes 21 properties (4 properties – December 31, 2023) classified as assets held for sale.
(6) Includes committed new leases for future occupancy.
   

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 and nine months ended September 30, 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

Net operating income for the three months ended September 30, 2024 was $32.6 million or $3.2 million higher than Q3 2023, which was primarily due to $2.7 million from acquisitions of industrial income producing property completed subsequent to Q3 2023 and an increase in same property NOI of $1.2 million from lease up of 1751-1771 Savage Rd, Richmond, BC, partially offset by $0.2 million relating to dispositions completed since Q3 2023, $0.2 million relating to straight-line adjustments of rent and $0.2 million relating to tenant incentives and leasing costs amortization.

Net operating income for the nine months ended September 30, 2024 was $93.7 million or $11.0 million higher than the same period in 2023, which was primarily due to $11.1 million from acquisitions of industrial income producing property completed subsequent to Q3 2023 and an increase in same property NOI of $1.8 million, partially offset by $0.6 million relating to development projects, $0.9 million relating to dispositions completed since Q3 2023 and $0.2 million relating to tenant incentives and leasing costs amortization.

Fair value adjustment of investment properties

The fair value adjustment of investment properties for the three months ended September 30, 2024, totalled $11.1 million. The REIT engaged external appraisers to value properties totaling $69.5 million in the quarter, resulting in a net write-up of income producing properties of $2.1 million. Overall, fair value gains recorded for the REIT’s portfolio primarily consists of $6.0 million relating to changes in stabilized NOI and capitalization rates, $1.4 million from the remeasurement of Class B LP Units issued as part of an acquisition in the quarter, $2.4 million relating to fair value gains from the sale of an excess land at Fort St-John, BC and $5.4 million relating to properties held for development based on development progress relative to the as-completed appraisal value. Partially offsetting this is $1.4 million of capital expenditures that were not deemed to increase the fair value of the properties and therefore fair valued to zero, $0.6 million of fair value losses related to transaction costs from an acquisition completed during the quarter and $2.2 million of fair value loss relating to investment property sale price adjustment.

The fair value adjustment of investment properties for the nine months ended September 30, 2024, totalled $39.8 million. The fair value adjustment reflects the net write up of income properties primarily due to $23.0 million relating to changes in stabilized NOI and capitalization rates, $2.4 million relating to fair value gains from the sale of an excess land at Fort St-John, BC, $1.4 million from the remeasurement of Class B LP Units issued as part of an acquisition in Q3 2024, and $22.3 million in respect of properties held for development. Partially offsetting this is $5.2 million of capital expenditures that were not deemed to increase the fair value of the properties and therefore fair valued to zero, $1.7 million of fair value losses related to transaction costs from acquisitions completed during the period, and $2.3 million relating to revaluation adjustments to investment properties prior to disposition.

Outlook

The REIT is focused on delivering total unitholder return through profitable long-term growth, and by pursuing 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 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 occupancy April 1st and the remaining space is tenanted effective February 2025. The property is expected to contribute a yield of 7.9% on total development costs of $48 million.
  • In the third quarter of 2024, the REIT completed construction of the 96,000 sq ft Hubrey Rd. expansion project in London, ON. This project was tenanted in July, contributing a yield of 8.4% on total development costs of $14 million.
  • In the third quarter of 2024, the REIT completed construction of the 115,000 sq ft Glover Rd. new development in Hamilton, ON. This property will contribute an estimated going-in yield 5.9% on total development costs of $25 million (at the REIT’s 80% interest). The Glover Rd. property is being actively marketed for a tenant.
  • The REIT expects to complete its 325,000 sq ft Dennis Rd. expansion project in St. Thomas, ON in the first quarter of 2025. This project is being constructed for an existing tenant. The REIT earns 7.8% on capital expenditures during the construction phase, and will earn a contractual going-in yield of 9.0% on the total development costs of $49 million upon completion.

The REIT will continue to prioritize unitholder distributions. The REIT believes that its normalized AFFO payout ratio peaked in the first quarter of 2024 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 disposing its legacy retail and office properties and a group of non-core industrial buildings. The REIT is targeting asset sales of approximately $110 million in the second half of 2024, and will use the proceeds to reduce its debt balance.

Earnings Call

Management of the REIT will host a conference call at 10:00 AM Eastern Standard Time on Tuesday November 12, 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 December 12, 2024. To access the recording, please dial 1-412-317-0088 or 1-855-669-9658 (toll free in Canada and the US) and enter access code 7467865.

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 111 properties (including one property held for development in which the REIT has an 80% interest) comprising approximately 13.0 million square feet of gross leasable area. The REIT has approximately 94,159,000 voting units issued and outstanding, including approximately 70,749,000 REIT Units and approximately 23,410,000 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.

For further information please contact:

Kelly C. Hanczyk, CEO at (416) 906-2379 or
Mike Rawle, CFO at (647) 823-1381

APPENDIX A – NON-IFRS FINANCIAL MEASURES
       
(In thousands of Canadian dollars, except per unit amounts) Three months ended   Nine months ended
September 30, September 30,
  2024   2023   Change     2024   2023   Change  
FFO $   $   $     $   $   $  
               
Net (loss) income (45,991 ) 76,954   (122,945 )   41,205   157,893   (116,688 )
Adjustments:              
Loss on disposal of investment properties 282     282     533   807   (274 )
Fair value adjustment of investment properties (11,081 ) (30,112 ) 19,031     (39,824 ) (60,428 ) 20,604  
Fair value adjustment of Class B LP Units 47,477   (28,663 ) 76,140     15,592   (51,184 ) 66,776  
Fair value adjustment of incentive units 322   (131 ) 453     175   (252 ) 427  
Fair value adjustment of derivative financial instruments 22,243   (3,766 ) 26,009     17,794   (6,337 ) 24,131  
Adjustments for equity accounted joint venture (1) 224   (55 ) 279     295   (125 ) 420  
Distributions on Class B LP Units expensed 3,745   3,555   190     11,532   10,036   1,496  
Amortization of tenant incentives and leasing costs 445   272   173     1,102   853   249  
Lease principal payments (25 ) (17 ) (8 )   (45 ) (49 ) 4  
Amortization of right-of-use assets 30   23   7     90   69   21  
Net effect of unrealized foreign exchange on USD debt and related hedges (58 )   (58 )   95     95  
Funds from operations (FFO) 17,613   18,060   (447 )   48,544   51,283   (2,739 )
Weighted average units outstanding (000s) Basic (4) 94,137   90,452   3,685     93,675   88,844   4,831  
FFO per unit – basic 0.187   0.200   (0.013 )   0.518   0.577   (0.059 )
               
FFO 17,613   18,060   (447 )   48,544   51,283   (2,739 )
Add: Vendor rent obligation (2)   628   (628 )   628   1,923   (1,295 )
Less: Other income (2)   (801 ) 801       (1,602 ) 1,602  
Add: Non-recurring personnel transition costs 18     18     344     344  
Add: Non-recurring write-offs associated with dispositions of non-core legacy assets 86     86     86     86  
Normalized FFO 17,717   17,887   (170 )   49,602   51,604   (2,002 )
Weighted average units outstanding (000s) Basic (4) 94,137   90,452   3,685     93,675   88,844   4,831  
Normalized FFO per unit – basic 0.188   0.198   (0.010 )   0.530   0.581   (0.051 )
               
               
               
(In thousands of Canadian dollars, except per unit amounts) Three months ended   Nine months ended
September 30, September 30,
  2024   2023   Change     2024   2023   Change  
AFFO $   $   $     $   $   $  
               
FFO 17,613   18,060   (447 )   48,544   51,283   (2,739 )
Adjustments:              
Straight-line adjustments ground lease and rent (1,218 ) (1,438 ) 220     (3,591 ) (3,663 ) 72  
Capital reserve (3) (1,600 ) (1,550 ) (50 )   (4,800 ) (4,500 ) (300 )
Adjusted funds from operations (AFFO) 14,795   15,072   (277 )   40,153   43,120   (2,967 )
Weighted average units outstanding (000s) Basic (4) 94,137   90,452   3,685     93,675   88,844   4,831  
AFFO per unit – basic 0.157   0.167   (0.010 )   0.429   0.485   (0.056 )
               
AFFO 14,795   15,072   (277 )   40,153   43,120   (2,967 )
Add: Vendor rent obligation (2)   628   (628 )   628   1,923   (1,295 )
Less: Other income (2)   (801 ) 801       (1,602 ) 1,602  
Add: Non-recurring personnel transition costs 18     18     344     344  
Add: Non-recurring balance sheet write-offs associated with dispositions of non-core legacy assets 86     86     86     86  
Normalized AFFO 14,899   14,899       41,211   43,441   (2,230 )
Weighted average units outstanding (000s) Basic (4) 94,137   90,452   3,685     93,675   88,844   4,831  
Normalized AFFO per unit – basic 0.158   0.165   (0.007 )   0.440   0.489   (0.049 )
(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 a fair value adjustment of the joint venture investment property.
(2) Until Q1 2024, Normalized FFO and Normalized AFFO included adjustments for vendor rent obligation amounts due from the vendor of the REIT’s Richmond, BC property, until certain conditions were satisfied. During Q2 2024, these conditions were satisfied and the vendor settled all outstanding amounts.
(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.
SAME PROPERTY RESULTS
               
(In thousands of Canadian dollars)              
  Three months ended   Nine months ended
  September 30, September 30,
  2024   2023   Change     2024   2023   Change  
  $   $   $     $   $   $  
               
Property revenues 45,529   39,752   5,777     131,036   115,647   15,389  
Property expenses (12,961 ) (10,421 ) (2,540 )   (37,314 ) (32,899 ) (4,415 )
NOI 32,568   29,331   3,237     93,722   82,748   10,974  
Add/(Deduct):              
Amortization of tenant incentives and leasing costs 445   273   172     1,102   854   248  
Straight-line adjustments of rent (1,215 ) (1,435 ) 220     (3,582 ) (3,649 ) 67  
Development and expansion (264 ) (309 ) 45     (290 ) (928 ) 638  
Acquisitions (3,282 ) (560 ) (2,722 )   (17,036 ) (5,978 ) (11,058 )
Disposals (230 ) (443 ) 213     (1,226 ) (2,168 ) 942  
Termination fees and other non-recurring items (10 )   (10 )   (147 ) (152 ) 5  
Same Property NOI 28,012   26,857   1,155     72,543   70,727   1,816  
               
Industrial same property NOI 26,262   24,858   1,404     67,312   65,028   2,284  


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