Nexus Industrial REIT Announces Q2 2023 Results and August and September Distributions
TORONTO, Aug. 11, 2023 (GLOBE NEWSWIRE) — Nexus Industrial REIT (the “REIT”) (TSX: NXR.UN) announced today its results for the quarter ended June 30, 2023.
Highlights
- July 4 – acquired a 141,534 square foot industrial property located in Burlington, Ontario for $48.4 million.
- June 15 – acquired a 304,323 square foot industrial property located in London, Ontario for a contractual purchase price of $56.4 million. $24.3 million of the purchase price was settled through the issuance of 2,359,978 Class B LP Units at a deemed price per unit of $10.30.
- June 5 – acquired an 18-acre parcel of land in St. Thomas, Ontario, for $4.5 million. The parcel acquired is adjacent to another property owned by the REIT.
- June 5 – sold an industrial property located in Kamloops, British Columbia for $4.2 million.
- June 1 – acquired a 191,878 square feet industrial property located in Laval, Quebec for $64.7 million.
- April 26 – sold a retail property located in Victoriaville, Quebec for $41.6 million.
- April 21 – acquired a 264,600 square foot industrial property located in London, Ontario for $36.0 million.
- NOI from industrial properties anticipated to increase to approximately 91% for Q3 as a result of these transactions.
- Occupancy of 97% at June 30, 2023 was consistent with 97% at March 31, 2023 and June 30, 2022.
- Q2 2023 net operating income of $27.6 million increased by $3.7 million or 15.3% as compared to Q2 2022 net operating income of $24.0 million and by $1.9 million or 7.4% as compared to Q1 2023 net operating income of $25.7 million. The disposal of an industrial and four retail properties since 2022 reduced NOI by $0.9 million and the REIT received a termination fee of $0.2 million from a tenant at one of the REIT’s office properties.
- Q2 2023 Same Property NOI(1) of $23.1 million increased by $0.9 million or 4.3% as compared to Q2 2022, primarily driven by rental steps, CPI increases and new and renewal lease lift.
- Q2 2023 Normalized FFO(1) per unit of $0.196 as compared to $0.187 for Q1 2023 and $0.203 for Q2 2022.
- Q2 2023 Normalized AFFO(1) per unit of $0.165 as compared to $0.159 for Q1 2023 and $0.177 for Q2 2022.
- Q2 2023 Normalized AFFO payout ratio(1) of 97.3%, as compared to 100.7% for Q1 2023 and 90.3% for Q2 2022.
- NAV(1) per unit of $12.49 at June 30, 2023 as compared to $12.13 at March 31, 2023 and $12.41 at June 30, 2022.
- Debt to Total Assets of 48.0% at June 30, 2023 ; $88.6 million undrawn on the REIT’s lines of credit and $568.6 million unencumbered asset pool.
- Management of the REIT will host a conference call on Monday August 14th at 1PM EST to review results and operations.
(1) Non-IFRS Financial Measure
“During the quarter, we continued with the high grading of our portfolio, acquiring two industrial properties in London, Ontario totaling 568,923 square feet, and a 191,878 square foot industrial property in Laval, Quebec,” commented Kelly Hanczyk, the REIT’s Chief Executive Officer. “On July 4th, we acquired a 141,534 square foot industrial property in Burlington, Ontario. The Burlington and Laval properties are brand new construction class A buildings with embedded annual rental steps averaging just over 4%. Market rents for one of the London properties acquired are 175% higher than in place rents with the lease expiring in 2025. We also completed the sale of our Victoriaville, Quebec retail property in the quarter, which will push our industrial weighting by NOI to over 90% for Q3. Our Same Property NOI increased by 4.3% or $0.9 million as compared to Q2 2022. While we will be very selective in evaluating further acquisition opportunities going forward, we are progressing well with our high-yielding development projects, having broken ground at two sites. Also in the quarter, we acquired an 18-acre parcel of land in St. Thomas, Ontario, adjacent to another property we own, and we have signed an expansion agreement with our existing tenant to construct an additional 70,000 sq. ft. of GLA. These projects are expected to deliver very attractive yields and to generate sizeable NAV, FFO and AFFO growth.”
Summary of Results
| (In thousands of Canadian dollars, except per unit amounts) | Three months ended June 30, | Six months ended June 30, | ||
| 2023 | 2022 | 2023 | 2022 | |
| Financial Results | $ | $ | $ | $ |
| Property revenues | 38,419 | 34,142 | 75,895 | 65,841 |
| Net operating income (NOI) | 27,689 | 23,962 | 53,417 | 45,986 |
| Net income | 77,222 | 79,640 | 80,939 | 97,704 |
| Financial Highlights | ||||||||
| Funds from operations (FFO) (1) | 16,775 | 15,700 | 33,223 | 30,424 | ||||
| Normalized FFO (1) (2) | 17,266 | 16,027 | 33,717 | 30,905 | ||||
| Adjusted funds from operations (AFFO) (1) | 14,100 | 13,621 | 28,048 | 26,299 | ||||
| Normalized AFFO (1) (2) | 14,591 | 13,948 | 28,542 | 26,780 | ||||
| Same Property NOI (1) | 23,125 | 22,189 | 39,617 | 37,915 | ||||
| Distributions declared (3) | 14,192 | 12,598 | 28,234 | 25,010 | ||||
| Weighted average units outstanding (000s) – basic (4) | 88,310 | 78,842 | 88,027 | 78,204 | ||||
| Weighted average units outstanding (000s) – diluted (4) | 88,412 | 79,001 | 88,129 | 78,410 | ||||
| Per unit amounts: | ||||||||
| Distributions per unit – basic (3) (4) | 0.161 | 0.160 | 0.321 | 0.320 | ||||
| FFO per unit – basic (1) (4) | 0.190 | 0.199 | 0.377 | 0.389 | ||||
| Normalized FFO per unit – basic (1) (2) (4) | 0.196 | 0.203 | 0.383 | 0.395 | ||||
| AFFO per unit – basic (1) (4) | 0.160 | 0.173 | 0.319 | 0.336 | ||||
| Normalized AFFO per unit – basic (1) (2) (4) | 0.165 | 0.177 | 0.324 | 0.342 | ||||
| NAV per unit (1) | 12.49 | 12.41 | 12.49 | 12.41 | ||||
| Normalized AFFO payout ratio – basic (1) (2) (3) | 97.3% | 90.3% | 98.9% | 93.4% | ||||
| Debt to total assets ratio | 48.0% | 46.0% | 48.0% | 46.0% | ||||
| Estimated spread between industrial portfolio market and in-place rents | 24.4% | N/A | 24.4% | N/A | ||||
| (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. | |
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 six-month ended June 30, 2023, 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.
NOI
Q2 2023 NOI of $27.7 million was $3.7 million higher than Q2 2022 NOI of $24.0 million. Acquisitions completed subsequent to April 1, 2022 generated $3.2 million of incremental NOI in Q2 2023 as compared to Q2 2022. Q2 2023 Same Property NOI increased $0.9 million as compared to Q2 2022, primarily driven by rental steps and CPI increases at certain of the REIT’s industrial properties as well as new and renewal lease lift. Higher straight-line rents contributed $0.4 million to the increase over Q2 2022, driven primarily by newly acquired properties with steps in rent. The REIT received a total of $0.2 million of termination fees from two office tenants in the quarter. The disposals of one small industrial and four retail properties between April 2022 and June 30, 2023 reduced NOI by $0.9 million as compared to Q2 2022.
Fair value adjustment of investment properties
The REIT recorded a fair value adjustment of investment properties of $33.0 million for Q2 2023, which reflects $39.2 million of fair value gains related to the adjustment of stabilized NOI to market rates net of capitalization rate expansion for those properties where market rents exceeded in-place rents (of which approximately $37 million of net gains were recorded in the Ontario industrial portfolio and $14 million in the Quebec industrial portfolio), $4.4 million of fair value gains related to the remeasurement of Class B LP Units issued as part of the acquisition of an industrial property in London, Ontario, partially offset by $5.3 million of fair value losses related to transaction costs and mark to market adjustments on mortgages assumed in connection with acquisitions completed during the quarter, $5.1 million of capital expenditures fair valued to zero, and $1.5 million of fair value losses relating to revaluation adjustments to investment properties prior to disposition.
Earnings Call
Management of the REIT will host a conference call at 1:00 PM Eastern Standard Time on Monday, August 14, 2023 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 September 14, 2023. 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 0271.
August and September 2023 Distributions
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 September 15, 2023, to unitholders of record as of August 31, 2023.
The REIT will also make a cash distribution in the amount of $0.05333 per unit, representing $0.64 per unit on an annualized basis, payable October 16, 2023 to unitholders of record as of September 29, 2023.
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 the ownership and management of its portfolio of properties. The REIT currently owns a portfolio of 115 properties (including two properties held for development in which the REIT has an 80% interest) comprising approximately 12.1 million square feet of gross leasable area. The REIT has approximately 68,193,000 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 22,220,000 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 June 30, | Six months ended June 30, | ||||||||||
| 2023 | 2022 | Change | 2023 | 2022 | Change | |||||||
| FFO | $ | $ | $ | $ | $ | $ | ||||||
| Net income | 77,222 | 79,640 | (2,418 | ) | 80,939 | 97,704 | (16,765 | ) | ||||
| Adjustments: | ||||||||||||
| Loss on disposal of investment properties | 807 | – | 807 | 807 | – | 807 | ||||||
| Fair value adjustment of investment properties | (33,031 | ) | 4,548 | (37,579 | ) | (30,316 | ) | 2,623 | (32,939 | ) | ||
| Fair value adjustment of Class B LP Units | (25,129 | ) | (64,346 | ) | 39,217 | (22,521 | ) | (60,654 | ) | 38,133 | ||
| Fair value adjustment of unit options | – | (550 | ) | 550 | – | (408 | ) | 408 | ||||
| Fair value adjustment of restricted share units | (130 | ) | (287 | ) | 157 | (121 | ) | (245 | ) | 124 | ||
| Fair value adjustment of derivative financial instruments | (6,400 | ) | (7,399 | ) | 999 | (2,571 | ) | (15,866 | ) | 13,295 | ||
| Adjustments for equity accounted joint venture(1) | (158 | ) | 548 | (706 | ) | (70 | ) | 244 | (314 | ) | ||
| Distributions on Class B LP Units expensed | 3,303 | 3,323 | (20 | ) | 6,481 | 6,528 | (47 | ) | ||||
| Amortization of tenant incentives and leasing costs | 285 | 211 | 74 | 581 | 476 | 105 | ||||||
| Lease principal payments | (17 | ) | (11 | ) | (6 | ) | (32 | ) | (24 | ) | (8 | ) |
| Amortization of right-of-use assets | 23 | 23 | – | 46 | 46 | – | ||||||
| Funds from operations (FFO) | 16,775 | 15,700 | 1,075 | 33,223 | 30,424 | 2,799 | ||||||
| Weighted average units outstanding (000s) – basic(4) | 88,310 | 78,842 | 9,468 | 88,027 | 78,204 | 9,823 | ||||||
| FFO per unit – basic | 0.190 | 0.199 | (0.009 | ) | 0.377 | 0.389 | (0.012 | ) | ||||
| FFO | 16,775 | 15,700 | 1,075 | 33,223 | 30,424 | 2,799 | ||||||
| Add: Vendor rent obligation(2) | 691 | 728 | (37 | ) | 1,295 | 1,283 | 12 | |||||
| Less: Other income(2) | (200 | ) | (401 | ) | 201 | (801 | ) | (802 | ) | 1 | ||
| Normalized FFO | 17,266 | 16,027 | 1,239 | 33,717 | 30,905 | 2,812 | ||||||
| Weighted average units outstanding (000s) Basic(4) | 88,310 | 78,842 | 9,486 | 88,027 | 78,204 | 9,823 | ||||||
| Normalized FFO per unit – basic | 0.196 | 0.203 | (0.007 | ) | 0.383 | 0.395 | (0.012 | ) | ||||
| (In thousands of Canadian dollars, except per unit amounts) | Three months ended June 30, | Six months ended June 30, | ||||||||||
| 2023 | 2022 | Change | 2023 | 2022 | Change | |||||||
| AFFO | $ | $ | $ | $ | $ | $ | ||||||
| FFO | 16,775 | 15,700 | 1,075 | 33,223 | 30,424 | 2,799 | ||||||
| Adjustments: | ||||||||||||
| Straight-line adjustments ground lease and rent | (1,125 | ) | (829 | ) | (296 | ) | (2,225 | ) | (1,625 | ) | (600 | ) |
| Capital reserve(3) | (1,550 | ) | (1,250 | ) | (300 | ) | (2,950 | ) | (2,500 | ) | (450 | ) |
| Adjusted funds from operations (AFFO) | 14,100 | 13,621 | 479 | 28,048 | 26,299 | 1,749 | ||||||
| Weighted average units outstanding (000s) – basic(4) | 88,310 | 78,842 | 9,468 | 88,027 | 78,204 | 9,823 | ||||||
| AFFO per unit – basic | 0.160 | 0.173 | (0.013 | ) | 0.319 | 0.336 | (0.017 | ) | ||||
| AFFO | 14,100 | 13,621 | 479 | 28,048 | 26,299 | 1,749 | ||||||
| Add: Vendor rent obligation (2) | 691 | 728 | (37 | ) | 1,295 | 1,283 | 12 | |||||
| Less: Other income (2) | (200 | ) | (401 | ) | 201 | (801 | ) | (802 | ) | 1 | ||
| Normalized AFFO | 14,591 | 13,948 | 643 | 28,542 | 26,780 | 1,762 | ||||||
| Weighted average units outstanding (000s) – basic (4) | 88,310 | 78,842 | 9,468 | 88,027 | 78,204 | 9,823 | ||||||
| Normalized AFFO per unit – basic | 0.165 | 0.177 | (0.012 | ) | 0.324 | 0.342 | (0.018 | ) |
| (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 June 30, | Six Months ended June 30, | ||||||||||
| Same Property NOI | 2023 | 2022 | Change | 2023 | 2022 | Change | ||||||
| $ | $ | $ | $ | $ | $ | |||||||
| Property revenues | 38,419 | 34,142 | 4,277 | 75,895 | 65,841 | 10,054 | ||||||
| Property expenses | (10,730 | ) | (10,180 | ) | (550 | ) | (22,478 | ) | (19,855 | ) | (2,623 | ) |
| NOI | 27,689 | 23,962 | 3,727 | 53,417 | 45,986 | 7,431 | ||||||
| Add/(Deduct): | ||||||||||||
| Amortization of tenant incentives and leasing costs | 284 | 210 | 74 | 581 | 476 | 105 | ||||||
| Straight-line adjustments of rent | (1,197 | ) | (812 | ) | (385 | ) | (2,214 | ) | (1,591 | ) | (623 | ) |
| Acquisitions | (3,237 | ) | – | (3,237 | ) | (11,132 | ) | (4,741 | ) | (6,391 | ) | |
| Disposals | (189 | ) | (1,112 | ) | 923 | (883 | ) | (2,156 | ) | 1,273 | ||
| Termination fees and other non-recurring items | (225 | ) | (59 | ) | (166 | ) | (152 | ) | (59 | ) | (93 | ) |
| Same Property NOI | 23,125 | 22,189 | 936 | 39,617 | 37,915 | 1,702 | ||||||
