Nexus REIT had a big 2021, has major growth plans for this year and beyond, and will soon rebrand to Nexus Industrial REIT to better reflect its portfolio and strategy.
Nexus, which owns 98 properties comprising approximately 9.3 million square feet of gross leasable area (GLA), graduated from the TSX Venture Exchange to the Toronto Stock Exchange (NXR-UN-T) on Feb. 1, 2021. The move has had a major impact on the REIT, which has offices in Oakville (just west of Toronto) and Montreal.
“There are institutional funds that really can’t play sometimes when you’re on the ‘V’, ” Nexus chief executive officer Kelly Hanczyk told RENX. “(Moving to the TSX) just opens it up to another group of investors, which is great for liquidity.”
The stock price opened at $8.30 on the TSX, but was trading at around $12, with a market cap of $670 million, on Jan. 21. Hanczyk said Nexus has a good mix of retail and institutional investors.
Nexus has strong liquidity
Nexus was created through the merger of Nobel REIT and Edgefront REIT in April 2017.
It raised approximately $295 million in equity through three offerings during 2021 which brought in many new institutional investors.
“It allows the stock to be more stable and in longer-term hands,” said Hanczyk, who noted there are no plans for any new equity raise anytime soon.
“We’re in a pretty liquid position right now, with the last offering being substantial. It’s given us a pretty good runway for additional acquisitions, so we’re busy deploying it.”
Nexus’ portfolio has performed very well over the past year, as it has a number of stable longer-term leases for single-tenanted properties as well as some rollover leases from which it plans to derive increased rents.
Nexus’ 2021 acquisitions
Nexus acquired 24 industrial properties in 2021, adding approximately 4.7 million square feet of GLA for an aggregate purchase price of $684.5 million. The purchases reflect a 5.77 per cent weighted average going-in capitalization rate.
Several of those acquisitions came in Q4.
Nexus completed the $230.4-million acquisition of three distribution centres with 1.4 million square feet of GLA on Oct. 1:
– a single-tenanted Loblaw distribution centre with 1.03 million square feet of GLA, including both cold and frozen storage, on 84 acres at 2101 Fleming Rd. in Regina;
– a 124,655-square-foot, single-tenanted Loblaw distribution centre on 15 acres at 775 Frenette Ave. in Moncton;
– and a 226,135-square-foot, single-tenanted Shoppers Drug Mart distribution centre on 16 acres at 10 DeWare Dr. in Moncton.
Nexus completed the $11.5-million acquisition of a 101,073-square-foot industrial property fully occupied by Dakkota Integrated Systems in Windsor, Ont. on Oct. 13.
The REIT then acquired a 391,074-square-foot industrial property at 1040 Wilton Grove Rd. and 961 Pond Mills Rd. in London, Ont. for $44.1 million on Nov. 1 and another single-tenanted class-A distribution centre in Nisku, Alta. with approximately 142,000 square feet of GLA and 18.5 acres of land for about $19.3 million on Nov. 19.
On Dec. 9, it closed on a 50 per cent interest in a newly constructed, automated Voilà par IGA customer fulfillment centre in the Montreal suburb of Pointe-Claire for $98.2 million.
Crombie REIT is the partner in the 309,000-square-foot class-A property, which also includes a 186,000-square-foot mezzanine. It will serve as Empire Company Limited’s online grocery distribution hub for cities in Quebec and the Ottawa area.
Nexus completed the acquisition of an approximately 100,000-square-foot, single-tenanted distribution centre in London, Ont. for $12.55 million on Dec. 30.
“A lot of the properties we’ve recently purchased have been of A-class quality, so it’s really high-graded our portfolio,” said Hanczyk.
Nexus’ 2022 acquisitions
Nexus has already made its first purchase in 2022, an approximately 180,000-square-foot, multi-tenanted industrial property with 22 acres of excess land in Regina for $28 million, on Jan. 12.
The REIT is also under contract to make these acquisitions in 2022:
– a $28.9-million deal for an approximately 100,000-square-foot newly constructed distribution centre in the Montreal area that’s expected to close on Feb. 1;
– a $38.2-million deal for an approximately 210,000-square-foot industrial warehouse in Edmonton that’s expected to close on Feb. 7;
– two industrial properties in Edmonton with a total GLA of approximately 550,000 square feet for $91 million;
– a 72,420-square-foot industrial property in Edmonton for $14.75 million; and
– three properties in London, Ont. with a total GLA of approximately 340,000 square feet for approximately $35.7 million.
The weighted average cap rate for the property acquired on Jan. 12 and the properties under contract is 5.12 per cent.
“As we continue to close on that pipeline through January, February and March, as we’re in due diligence and various stages of closing, that cash flow will enter the system and will continue to boost the performance of the portfolio,” said Hanczyk.
“We’re actively looking at a bunch of different things right now. It all depends on how the negotiations go, but I expect to continue to acquire throughout the year.”
Nexus’ 2023 acquisitions
Nexus is also under contract to make these acquisitions in 2023:
– an approximately 550,000-square-foot distribution centre under construction in Ontario, leased long-term to an investment-grade tenant, for $116.5 million;
– and an approximately 325,000-square-foot industrial property, including an approximately 175,000-square-foot addition that’s under construction, in London, Ont. for approximately $50.6 million.
Once Nexus closes on the transactions it has announced, close to 85 per cent of its net operating income will come from industrial properties.
Name change to Nexus Industrial REIT
Nexus plans to continue selling its remaining 13 office and 21 retail properties, almost all of them located in Quebec, with a long-term goal of completely divesting of those asset classes.
“We’ll be fairly active this year in the solely owned assets,” said Hanczyk. “But we do have some joint ventures and co-ownership agreements that are a little trickier, so those will become legacy assets for a while until we start to move out of them.”
The name change to Nexus Industrial REIT remains subject to TSX approval, which Hanczyk expects to receive within a few weeks.
“The name ‘Industrial’ better reflects what we do and where we’re going as a company,” said Hanczyk. “Everything we’ve purchased in the last several years has been in the industrial sector, so it’s a logical move for us.
“From the investor side of things, we’ll get out of being lumped in with diversified (REITs) and move into comparisons against the industrial sector.”
Optimism for the future
Hanczyk expects the industrial asset class to continue its current upward trajectory.
“There’s a lot of money now chasing industrial product. Rents are continuing to be pushed, as there’s not enough supply in Canada for the demand. You’ll continue to see the sector boom for the foreseeable future.”
Hanczyk is therefore optimistic about future prospects for Nexus.
“I expect significant growth and to continue to get bigger and spread the risk out farther as we continue to grow the market cap,” he said. “We’ve had one of the best payout ratios and low debt to GBV (gross book value).
“We’ve been very conservative in nature, but broke out last year and will continue to acquire and manage our portfolio.
“We’ll look into developing some of our excess land this year, I would hope. At the end of the day, the fundamentals look really good for Nexus.”