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 | |||||||
