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.
For further information please contact:
Kelly C. Hanczyk, CEO at (416) 906-2379 orMike
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 |
) |
|
|
|
|