Nexus Industrial REIT Announces Q3 2022 Results and December Distribution

TORONTO, Nov. 14, 2022 (GLOBE NEWSWIRE) — Nexus Industrial REIT (the “REIT”) (TSX: NXR.UN) announced today its results for the quarter ended September 30, 2022.

Highlights

  • On November 1, 2022, the REIT acquired a 435,871 square foot portfolio of four industrial properties occupied by a single tenant for $38.2 million ($28.5 USD million). Three of the properties are located in Windsor, Ontario and one is located in Tilbury, Ontario.
  • On October 4, 2022, the REIT sold a retail property located in Longueuil, Quebec for $11.9 million.
  • On September 30, 2022, the REIT acquired an industrial property located in Cornwall, Ontario for $4.9 million. The property is occupied by one of the REIT’s existing tenants.
  • On September 8, 2022, the REIT acquired a single-tenant 74,681 square foot industrial property located in the Montreal area for $17.8 million.
  • On August 31, 2022, the REIT increased its existing revolving credit facility from $40 million to $140 million.
  • On August 3, 2022, the REIT sold a retail property located in Châteauguay, Quebec for $8.3 million.
  • On July 18, the REIT acquired an 80% interest in land located in Hamilton, Ontario for $4.8 million. The REIT anticipates being able to develop an approximately 115,000 square foot class A industrial building on the site, with construction completion anticipated for early 2024.
  • On July 11, 2022, the REIT acquired a single-tenant 94,000 square foot industrial property located in the Quebec City area for $18.9 million.
  • Occupancy of 97% at September 30, 2022 was consistent with June 30, 2022 and increased from 95% at September 30, 2021.
  • Q3 2022 net operating income of $24.9 million increased by $10.8 million or 76.6% as compared to $14.1 million for Q3 2021 and by $0.9 million or 3.8% as compared to $24.0 million for Q2 2022.
  • Q3 2022 Same Property NOI(1) of $12.9 million increased by $0.3 million or 2.1% as compared to Q3 2021. The increase is primarily driven by rental steps and CPI increases at certain of the REIT’s industrial properties as well as lease renewal lift, offsetting vacancy at one of the REIT’s industrial properties and an office property.  
  • Q3 2022 results included a $0.5 million unrealized foreign exchange loss which impacted per unit measures by $0.006 per unit.
  • Q3 2022 Normalized FFO(1) per unit was $0.209, as compared to $0.203 for Q2 2022 and $0.191 for Q3 2021.
  • Q3 2022 Normalized AFFO(1) per unit was $0.179, as compared to $0.177 for Q2 2022 and $0.174 for Q3 2021.
  • Q3 2022 Normalized AFFO payout ratio(1) was 88.9%, as compared to 90.3% for Q2 2022 and 95.9% for Q3 2021.
  • NAV(1) per unit increased to $12.45 at September 30, 2022 as compared to $12.41 at June 30, 2022 and $11.55 at September 30, 2021.
  • Debt to Total Assets of 47.2% at September 30, 2022. $60.0 million of availability on the REIT’s lines of credit and $59.4 million of unencumbered properties.
  (1) Non-IFRS Financial Measure

“In the third quarter, we began to see the positive impact of rental rate growth in our industrial portfolio with approximately 150,000 square feet of renewals and new leases commencing in the quarter with rents on average $1.35 per square foot higher than expiring rents. In the fourth quarter, we have approximately 250,000 square feet of renewals and new leases commencing with rents on average $2.50 per square foot higher than expiring rents commented Kelly Hanczyk, the REIT’s Chief Executive Officer. “On the development front we are in negotiation with a tenant for a new build to suit industrial building at a REIT property in Regina, Saskatchewan where we have 23 acres of excess land on which we plan to build 300,000 square feet of gross leasable area.  In London, Ontario we are awaiting permits for a planned 100,000 square feet addition to one of our properties, which we are currently in negotiation with a tenant to lease upon completion. We continue to soft market several of our retail and office properties and have an offer in play for one of our Quebec retail properties. We have also received an unsolicited offer to purchase a small portfolio of industrial properties in Saskatchewan. We will continue to pursue capital recycling opportunities where they make sense, with proceeds used to fund development projects that are expected to generate higher yields and to acquire class A industrial properties in Ontario and Quebec that will further elevate the quality of our portfolio.”

Summary of Results

(In thousands of Canadian dollars, except per unit amounts) Three months ended
September 30,
Nine months ended
September 30,
  2022   2021   2022   2021  
Financial Results $   $ $   $  
               
Property revenues 34,424   20,719   100,265   56,022  
Net operating income (NOI) 24,873   14,095   70,859   36,881  
Net income (loss) 40,055   (12,075 ) 137,759   48,779  
Financial Highlights        
         
Funds from operations (FFO) (1) 16,661   9,979   47,085   25,579  
Normalized FFO (1) (2) 16,548   10,393   47,454   26,666  
Adjusted funds from operations (AFFO) (1) 14,302   9,074   40,601   23,027  
Normalized AFFO (1) (2) 14,189   9,488   40,970   24,114  
Same Property NOI (1) 12,935   12,666   30,182   30,388  
Distributions declared (3) 12,609   9,098   37,619   22,606  
         
Weighted average units outstanding (000s) – basic (4) 79,208   54,428   78,543   46,322  
Weighted average units outstanding (000s) – diluted (4) 79,336   54,600   78,696   46,530  
         
Per unit amounts:        
Distributions per unit – basic (3) (4) 0.159   0.167   0.479   0.488  
FFO per unit – basic (1) (4) 0.210   0.183   0.599   0.552  
Normalized FFO per unit – basic (1) (2) (4) 0.209   0.191   0.604   0.576  
AFFO per unit – basic (1) (4) 0.181   0.167   0.517   0.497  
Normalized AFFO per unit – basic (1) (2) (4) 0.179   0.174   0.522   0.521  
         
NAV per unit (1) 12.45   11.21   12.45   11.21  
         
Normalized AFFO payout ratio – basic (1) (2) (3) 88.9%   95.9%   91.8%   93.7%  
Debt to total assets ratio 47.2%   36.6%   47.2%   36.6%  
  (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 condensed consolidated interim financial statements.
  (4) Weighted average number of units includes the Class B LP Units.

Included in the table 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, 2022, available on SEDAR at www.sedar.com 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.

Q3 2022 NOI of $24.9 million was $10.8 million higher than Q3 2021 NOI of $14.1 million. Acquisitions since June 30, 2021 generated $9.7 million of incremental NOI in Q3 2022 as compared to Q3 2021. Incremental rental income from the completion of an expansion at the REIT’s Ajax property increased Q3 2022 NOI by $0.1 million as compared to Q3 2021. Q3 2022 Same Property NOI increased $0.3 million as compared to Q3 2021, primarily driven by rental steps and CPI increases at certain of the REIT’s industrial properties as well as lease renewal lift, offsetting vacancy at one of the REIT’s industrial properties and an office property. The disposal of a retail property in 2021 and another during Q3 2022 reduced NOI by $0.2 million. Straight-line rents also contributed $0.9 million to the increase over Q3 2021, driven primarily by newly acquired properties with steps in rent. Amortization of tenant incentives and leasing costs and termination fees were consistent for Q3 2022 and Q3 2021.

Q3 2022 fair value adjustment of investment properties of $1.9 million reflects $34.8 million of fair value write-downs primarily related to capitalization rate expansion for certain industrial properties ($31.4 million), retail properties ($1.9 million) and office properties ($1.5 million) and $1.1 million of transaction costs. In addition, the REIT’s assets held for sale were written down by $1.3 million due to capitalization rate expansion. These amounts were partially offset by a $23.9 million fair value gain related to NOI improvements, driven by leasing, at certain industrial properties and a $11.2 million gain related primarily to a recently acquired industrial property with development potential, the carrying value of which was adjusted to appraised value.

Q3 net income, AFFO and FFO included unrealized foreign exchange losses of $0.5 million on the revaluation of a US dollar denominated liability.

Earnings Call

Management of the REIT will host a conference call at 1:00 PM Eastern Standard Time on Tuesday November 15, 2022 to review the financial results and operations. To participate in the conference call, please dial 416-915-3239 or 1-800-319-4610 (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 15, 2022. 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 9580.

December 2022 Distribution

The REIT will make a cash distribution in the amount of $0.05333 per unit, representing $0.64 per unit on an annualized basis, payable January 16, 2023 to unitholders of record as of December 30, 2022.

The REIT’s distribution reinvestment plan (“DRIP”) entitles eligible unitholders to elect to receive all, or a portion of the cash distributions of the REIT reinvested in units of the REIT. Eligible unitholders who so elect will receive a bonus distribution of units equal to 4% of each distribution that was reinvested by them under the DRIP.

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 potentially including the United States, and the ownership and management of its portfolio of properties. The REIT currently owns a portfolio of 113 properties (including two properties held for development in which the REIT has an 80% interest) comprising approximately 11.1 million square feet of gross leasable area. The REIT has approximately 58,799,000 Units issued and outstanding. Additionally, there are Class B LP Units of subsidiary limited partnerships of Nexus issued and outstanding, which are convertible into approximately 20,535,000 Units.

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
Rob Chiasson, CFO at (416) 613-1262.

APPENDIX A – NON-IFRS FINANCIAL MEASURES

(In thousands of Canadian dollars, except per unit amounts) Three months ended
September 30,
  Nine months ended
September 30,
 
  2022   2021   Change   2022   2021   Change  
FFO $   $   $   $   $   $  
                         
Net income
40,055   (12,075 ) 52,130   137,759   48,779   88,980  
Adjustments:                        
Loss on disposal of investment properties 255     255   255   95   160  
Fair value adjustment of investment properties 1,890   (26,287 ) 28,177   4,513   (100,370 ) 104,883  
Fair value adjustment of Class B LP Units (27,558 ) 45,204   (72,762 ) (88,212 ) 73,104   (161,316 )
Fair value adjustment of unit options (200 ) 897   (1,097 ) (608 ) 1,798   (2,406 )
Fair value adjustment of restricted share units (124 ) 170   (294 ) (369 ) 318   (687 )
Fair value adjustment of derivative financial instruments (1,499 ) (704 ) (795 ) (17,365 ) (4,386 ) (12,979 )
Adjustments for equity accounted joint venture (1) 374   (44 ) 418   618   (302 ) 920  
Distributions on Class B LP Units expensed 3,251   2,624   627   9,779   5,974   3,805  
Amortization of tenant incentives and leasing costs 204   188   16   680   509   171  
Lease principal payments (10 ) (17 ) 7   (34 ) (50   16  
Amortization of right-of-use assets 23   23     69   70   (1 )
Deferred income taxes         40   (40 )
Funds from operations (FFO)
16,661   9,979   6,682   47,085   25,579   21,506  
Weighted average units outstanding (000s) – basic (5) 79,208   54,428   24,780   78,543   46,322   32,221  
FFO per unit – basic
0.210   0.183   0.027   0.599   0.552   0.047  
                         
FFO 16,661   9,979   6,682   47,085   25,579   21,506  
Add: Vendor rent obligation (2) 688   615   73   1,971   1,862   109  
Less: Other income (2) (801 ) (201 ) (600 ) (1,602 ) (982 ) (620 )
Add: TSX graduation listing fees (3)         207   (207 )
Normalized FFO 16,548   10,393   6,155   47,454   26,666   20,788  
Weighted average units outstanding (000s)
Basic (5)
79,208   54,428   24,780   78,543   46,322   32,221  
Normalized FFO per unit – basic 0.209   0.191   0.018   0.604   0.576   0.028  
                         
(In thousands of Canadian dollars, except per unit amounts) Three months ended
September 30,
Nine months ended
September 30,
 
  2022   2021   Change   2022   2021   Change  
AFFO $   $   $   $     $  
                         
FFO 16,661   9,979   6,682   47,085   25,579   21,506  
Adjustments:                        
Straight-line adjustments ground lease and rent (1,059 ) (155 ) (904 ) (2,684 ) (427 ) (2,257 )
Capital reserve (4) (1,300 ) (750 ) (550 ) (3,800 ) (2,125 ) (1,675 )
Adjusted funds from operations (AFFO) 14,302   9,074   5,228   40,601   23,027   17,574  
Weighted average units outstanding (000s) – basic (5) 79,208   54,428   24,780   78,543   46,322   32,221  
AFFO per unit – basic 0.181   0.167   0.014   0.517   0.497   0.020  
AFFO 14,302   9,074   5,228   40,601   23,027   17,574  
Add: Vendor rent obligation (2) 688   615   73   1,971   1,862   109  
Less: Other income (2) (801 ) (201 ) (600 ) (1,602 ) (982 ) (620 )
Add: TSX graduation listing fees (3)         207   (207 )
Normalized AFFO 14,189   9,488   4,701   40,970   24,114   16,856  
Weighted average units outstanding (000s) – basic (5) 79,208   54,428   24,780   78,543   46,322   32,221  
Normalized AFFO per unit – basic 0.179   0.174   0.005   0.522   0.521   0.001  
  (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 amounts related to the REIT’s Richmond, BC and Ajax properties, which are payable from the vendors of the properties until buildout of the properties is complete and 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 condensed consolidated interim statements of income and comprehensive income and include the scheduled quarterly rents receivable in the form of vendor rent obligation.
  (3) Normalized FFO and Normalized AFFO include adjustments for $0.2 million of one-time TSX listing fees related to graduation to the TSX, which are included in general and administrative expense in the nine-month period ended September 30, 2021.
  (4) 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.
  (5) Weighted average number of units includes the Class B LP Units.
(In thousands of Canadian dollars) Three Months ended
September 30,
Nine Months ended
September 30,
Same Property NOI 2022   2021   Change 2022   2021   Change
  $   $   $   $   $   $  
             
Property revenues 34,424   20,719   13,705   100,265   56,022   44,243  
Property expenses (9,551 ) (6,624 ) (2,927 ) (29,406 ) (19,141 ) (10,265 )
NOI 24,873   12,220   10,778   70,859   36,881   33,978  
Add/(Deduct):            
Amortization of tenant incentives and leasing costs 204   190   14   680   535   145  
Straight-line adjustments of rent (1,036 ) (134 ) (902 ) (2,619 ) (363 ) (2,256 )
Development (90 )   (90 ) (270 )   (270 )
Acquisitions (10,967 ) (1,224 ) (9,743 ) (38,109 ) (5,877 ) (32,232 )
Disposals (49 ) (260 ) 211   (300 ) (775 ) 475  
Termination fees and other non-recurring items   (1 ) 1   (59 ) (13 ) (46 )
Same Property NOI 12,935   12,666   269   30,182   30,388   (206 )


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