Nexus Industrial REIT (NXR-UN-T) is continuing to buy and sell properties to reposition its portfolio and chief executive officer Kelly Hanczyk expects both transactions and development activity to remain brisk through 2023.
“We are continuing to grow an institutional-grade portfolio,” Hanczyk told RENX. “A lot of the products that we have coming on, and with the deals we have, are brand-new products.
“From a quality perspective, I think it will be second to none. Our fundamentals are strong. We have pretty good rental rate increases over the next year. I think everything looks stellar for a pretty solid 2023.”
Oakville-headquartered Nexus owns 113 properties, including two held for development in which the REIT has an 80 per cent interest, comprising approximately 11.1 million square feet of gross leasable area.
Nexus’ portfolio had an occupancy rate of 97 per cent at the end of September, consistent with the previous quarter and 200 basis points higher than Q3 2021.
Windsor and Tilbury acquisitions
Nexus most recently acquired a 435,871-square-foot portfolio of four industrial properties occupied by automotive component provider Plasman for $38.2 million on Nov. 1:
- 5250 Outer Dr., 5245 Burke St. and 418 Silver Creek Industrial Dr. in Windsor; and
- 24 Industrial Park Rd. in the small southwestern Ontario town of Tilbury.
“It was more opportunistic,” Hanczyk said of the acquisition. “We had an opportunity to buy them and the company’s got a pretty good covenant.
“The cap rate was really good and the price per square foot of the assets was really low. The in-place rents are well below market so, while it’s a long-term lease, there’s pretty good downside protection on it just from a market rent perspective.”
Nexus already owned two other properties in Windsor that are doing well and it plans to expand one of them by 65,000 square feet.
Other recent acquisitions
Nexus acquired a 38,400-square-foot industrial property at 605 Boundary Rd. in Cornwall, Ont. for $4.9 million on Sept. 30.
The building was occupied by Seaway Express, which was acquired by Canada Cartage in the fall.
“That was more of a relationship-driven deal,” said Hanczyk. “We wouldn’t usually buy a $5-million building, but it belonged to one of our existing tenants who we have a really strong relationship with and we want to be their landlord of choice.
“It was taking over a company and didn’t want to own the real estate, so we did a quick sale-leaseback with them.”
Hanczyk said Nexus will probably buy an industrial property being built for Canada Cartage in Calgary in 2024.
Nexus acquired a single-tenant 74,681-square-foot industrial property at 21800 Clark-Graham Ave. in the Montreal area for $17.8 million on Sept. 8.
It also acquired a single-tenant 94,000-square-foot industrial property at 50 Rue Lisbonne in the Quebec City area for $18.9 million on July 11.
“They were newer properties and solid assets with long-term, solid tenants,” said Hanczyk.
Nexus acquired an 80 per cent interest in land located in Hamilton for $4.8 million on July 18. The REIT anticipates developing a 115,000-square-foot class-A industrial building on the site, with construction completion anticipated for early 2024.
The trust is in negotiations with an existing tenant for a 300,000-square-foot, build-to-suit industrial building on a property it already owns in Regina, where it has 23 acres of excess development land.
Hanczyk is hopeful ground can be broken on the project next spring.
“That would be a very attractive rate of return for us,” said Hanczyk.
Nexus is waiting on permits for a planned 100,000-square-foot addition to one of its properties in London, Ont. It was originally going to be built on spec, but the trust is in final negotiations with a tenant to lease it upon completion.
Hanczyk should know by January whether Nexus can move forward with a 65,000-square-foot expansion of a 130,500-square-foot facility it acquired last year at 70 Dennis Rd. in St. Thomas, Ont.
Selling properties and recycling funds
Nexus sold a retail property in Longueuil, Que. for $11.9 million on Oct. 4. It sold another retail property in Châteauguay, Que. for $8.3 million on Aug. 3.
The trust continues to soft-market several of its retail and office properties, sectors which now represent just 10 per cent of its total portfolio, and has an offer in play for another of its Quebec retail properties.
Nexus also received an unsolicited offer to purchase a small portfolio of industrial properties in Saskatchewan. That deal is now at the due diligence stage.
The REIT will continue to pursue capital recycling opportunities, with proceeds funding development projects expected to generate higher yields and to acquire class-A industrial properties in Ontario and Quebec.
“We are selling stuff, so that gives us free cash,” said Hanczyk. “We have an acquisition pipeline that’s fairly significant, so we’re able to transact if and when we want.
"It will just depend on how fast I can access or recycle that capital to allow me to buy additional product.”
Third-quarter results and stock performance
Nexus began to see the positive impact of rental rate growth in its industrial portfolio in Q3, with approximately 150,000 square feet of renewals and new leases commencing with rents at an average of $1.35 per square foot higher than expiring rents.
It has approximately 250,000 square feet of renewals and new leases starting this quarter with rents at an average of $2.50 per square foot higher than expiring rents.
Nexus had net operating income (NOI) of $24.87 million in Q3, which was $10.77 million higher than Q3 2021. Same-property NOI increased by about $300,000 during the same period.
The REIT had a debt-to-total-assets ratio of 47.2 per cent on Sept. 30. There was $60 million of availability on the REIT’s lines of credit and it had $59.4 million of unencumbered properties.
Nexus’ share price closed at $10.39 on the Toronto Stock Exchange on Nov. 18. That compares to a 52-week high of $14.03 and a 52-week low of $8.15. Its market cap was $608.02 million.
A joint venture between Singapore-headquartered investment firm GIC and Dream Industrial REIT announced on Nov. 7 an agreement to acquire Summit Industrial REIT in an all-cash transaction valued at approximately $5.9 billion.
Hanczyk said Nexus’ share price is undervalued, but he believes it will rise and the trust will be the benefactor of exiting Summit unitholders looking to invest in another Canadian industrial REIT.