Nexus Industrial REIT Announces Full Year and Fourth Quarter 2022 Results, Acquisition Update and March Distribution

Nexus Industrial REIT

March 14, 2023 at 10:53 PM·19 min read

TORONTO, March 14, 2023 (GLOBE NEWSWIRE) -- Nexus Industrial REIT (the “REIT”) (TSX: NXR.UN) announced today its results for the year and quarter ended December 31, 2022.

Highlights

On March 7, 2023, the REIT acquired a newly constructed 532,000 square foot distribution centre located in Casselman, Ontario for $116.8 million.
Successfully completed a bought deal financing on December 8, 2022, generating net proceeds of $80.5 million.
On November 1, 2022, the REIT acquired a 435,871 square foot portfolio of four industrial properties occupied by a single tenant for $38.9 million ($28.5 USD million). Three of the properties are located in Windsor, Ontario and one is located in Tilbury, Ontario.
Completed $316.8 million of industrial property acquisitions in 2022; increasing NOI from industrial properties to approximately 88% of NOI in Q4 2022 from 81% of NOI in Q4 2021.
During 2022, the REIT acquired 80% interests in two development sites in Hamilton, Ontario for $22.6 million. The REIT anticipates being able to develop approximately 358,000 square feet of class A industrial space on the sites, with construction completion anticipated for early and late 2024.
Completed the sale of two retail properties for $12.8 million during Q4 2022 and three properties for $21.1 million during 2022 generating net proceeds of $7.7 million for capital recycling.
On March 1, 2023, the REIT entered into senior unsecured credit facilities totalling $375 million with three-year terms (the “Unsecured Facilities”). The Unsecured Facilities are comprised of a $190 million revolving credit facility, a $175 million term loan facility and a $10 million swingline facility. The Unsecured Facilities replaced the REIT’s Credit Facility 3.
Occupancy of 97% at December 31, 2022 was consistent with 97% at September 30, 2022 and increased from 96% at December 31, 2021.
YTD 2022 net operating income of $95.8 million increased $39.9 million or 71.2% as compared to 2021 net operating income of $56 million. Q4 2022 net operating income of $25.0 million increased by $5.9 million or 31% as compared to Q4 2021 net operating income of $19.1 million and by $0.08 million or 0.31% as compared to Q3 2022 net operating income of $24.9 million.
Q4 2022 Same Property NOI(1) of $17.7 million increased by $0.4 million or 2.2% as compared to Q4 2021. The increase is primarily driven by rental steps, CPI increases, new and renewal lease lift at certain of the REIT’s industrial properties.
YTD 2022 results included a $0.6 million unrealized foreign exchange loss which impacted per unit measures by $0.007 per unit.
YTD 2022 Normalized FFO(1) per unit of $0.807, as compared to $0.770 for 2021; Q4 2022 Normalized FFO per unit of $0.203 as compared to $0.209 for Q3 2022 and $0.194 for Q4 2021.
YTD 2022 Normalized AFFO(1) per unit of $0.698 as compared to $0.692 for 2021; Q4 2022 Normalized AFFO per unit of $0.177 as compared to $0.179 for Q3 2022 and $0.173 for Q4 2021.
YTD 2022 Normalized AFFO payout ratio(1) of 91.7% compared to 94.7% for 2021; Q4 2022 Normalized AFFO payout ratio of 91.3%, as compared to 88.9% for Q3 2022 and 96.5% for Q4 2021.
NAV(1) per unit of $12.19 at December 31, 2022 as compared to $12.45 at September 30, 2022 and $12.18 at December 31, 2021.
Debt to Total Assets of 43.7% at December 31, 2022. $97.5 million of availability on the REIT’s lines of credit and $84.7 million of unencumbered properties.

(1) Non-IFRS Financial Measure

“In the fourth quarter, the completion of a bought deal financing generated approximately $81 million in proceeds to the REIT, and in March of this year we entered into senior unsecured credit facilities totalling $375 million, both of which have been part of laying the groundwork for our continued growth.” commented Kelly Hanczyk, the REIT’s Chief Executive Officer. “We continue to execute on our plan of increasing our industrial weighting, which stood at 88% of our NOI for Q4 2022. We have a firm offer to purchase one of our retail properties in Victoriaville QC and with this disposition our industrial weighting will grow to over 90% of NOI. Subsequent to year end, we closed on the previously announced acquisition of a 532,000 sq ft newly- built distribution centre and we are in the process of closing on an additional 965,000 sq ft of Class A industrial space currently under contract, which will further increase our industrial weighting. On the development front we will be breaking ground on two new buildings this spring including a standalone industrial building at a REIT property in Regina, Saskatchewan where we have 23 acres of excess land. We have secured a tenant for this site for a minimum 205,000 sq ft out of a planned 312,000 sq ft development. In London, Ontario we will be breaking ground on a 100,000 square foot addition to one of our properties, which we are currently in negotiation with an existing tenant to lease upon completion. Both properties are expected to produce outsized returns to the REIT” commented Kelly Hanczyk, the REIT’s Chief Executive Officer.

Summary of Results

(In thousands of Canadian dollars, except per unit amounts)	Three months ended December 31,			Year ended December 31,
	2022		2021	2022	2021
Financial Results	$		$	$	$

Property revenues	36,856		27,537	137,121	83,559
Net operating income (NOI)	24,949		19,071	95,808	55,952
Net income (loss)	(16,891	)	44,760	120,868	93,539

Financial Highlights

Funds from operations (FFO) ⁽¹⁾	16,753		14,079		63,837		39,658
Normalized FFO ^{(1) (2)}	16,516		13,288		63,969		39,954
Adjusted funds from operations (AFFO) ⁽¹⁾	14,632		12,619		55,232		35,646
Normalized AFFO ^{(1) (2)}	14,395		11,828		55,364		35,942
Same Property NOI ⁽¹⁾	17,681		9,736		39,157		36,734
Distributions declared ⁽³⁾	13,137		11,419		50,756		34,025

Weighted average units outstanding (000s) - basic ⁽⁴⁾	81,494		68,508		79,287		51,914
Weighted average units outstanding (000s) - diluted ⁽⁴⁾	81,596		68,695		79,389		52,066

Per unit amounts:
Distributions per unit - basic ^{(3) (4)}	0.161		0.167		0.640		0.655
FFO per unit - basic ^{(1) (4)}	0.206		0.206		0.805		0.764
Normalized FFO per unit - basic ^{(1) (2) (4)}	0.203		0.194		0.807		0.770
AFFO per unit - basic ^{(1) (4)}	0.180		0.184		0.697		0.687
Normalized AFFO per unit - basic ^{(1) (2) (4)}	0.177		0.173		0.698		0.692

NAV per unit ⁽¹⁾	12.19		12.18		12.19		12.18

Normalized AFFO payout ratio - basic ^{(1) (2) (3)}	91.3	%	96.5	%	91.7	%	94.7	%
Debt to total assets ratio	43.7	%	41.0	%	43.7	%	41.0	%

(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 consolidated financial statements.

(4) Weighted average number of units includes the Class B LP Units.

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-month period and year ended December 31, 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.

Q4 2022 NOI of $24.9 million was $5.9 million higher than Q4 2021 NOI of $19.1 million. Acquisitions since September 30, 2021 generated $5.6 million of incremental NOI in Q4 2022 as compared to Q4 2021. Incremental rental income from the completion of an expansion at the REIT’s Ajax property increased Q4 2022 NOI by $0.1 million as compared to Q4 2021. Q4 2022 Same Property NOI increased $0.4 million as compared to Q4 2021, primarily driven by rental steps and CPI increases at certain of the REIT’s industrial properties as well as new and renewal lease lift. Straight-line rents also contributed $0.4 million to the increase over Q4 2021, driven primarily by newly acquired properties with steps in rent. Amortization of tenant incentives and leasing costs increased $0.1 million over Q4 2021 reducing NOI. Termination fees also increased slightly over Q4 2021. The disposal of two investment properties in 2021 and three in 2022 reduced NOI by $0.4 million.

Q4 2022 fair value adjustment of investment properties of $8.1 million reflects $67.0 million of fair value write-downs primarily related to capitalization rate expansion for certain industrial properties ($64.7 million), retail properties ($0.9 million) and office properties ($1.4 million) and $0.9 million of transaction costs. During the quarter, $1.1 million of capital expenditures were also fair valued to zero. Partially offsetting were $62.0 million of fair value gains recognized for changes in stabilized NOI assumptions and other adjustments. Assets held for sale were written down by $1.0 million due to capitalization rate expansion.

Q4 net income, AFFO and FFO included unrealized foreign exchange gain of $0.1 million on the revaluation of a US dollar denominated liability.

Earnings Call

Management of the REIT will host a conference call at 11:30 AM Eastern Standard Time on Wednesday March 15, 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 April 15, 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 9844.

Acquisition Update

The REIT is pleased to provide the following update on acquisition activity:

Closed March 7, 2023

The REIT completed the acquisition of an approximately 532,000 square foot newly constructed class-A distribution centre in Casselman (Ottawa) Ontario for a $116.8 million purchase price. The property is leased long-term to Ford Motor Company of Canada and features 36-foot clear heights, 43 dock-level doors and 2 drive-in doors.

Under Firm Contract

An approximately 140,000 square foot brand new, single-tenant industrial distribution property in the Greater Toronto Area. The property features 32-foot clear heights, 28 loading doors, and two dock doors. The lease has a seven-year term, starting upon construction completion. The acquisition is expected to close July 4, 2023.
An approximately 190,000 square foot brand new, single-tenant industrial distribution property in the Greater Montreal Area. The property features 32-foot clear heights, 28 truck-level doors and 1 drive-in door. The lease has a seven-year term, starting upon construction completion. The acquisition is expected to close June 1, 2023.

An approximately 325,000 square foot industrial property including an approximately 175,000 square foot newly constructed addition in London, Ontario for a purchase price of approximately $50.6 million, of which $27.1 million is expected to be settled through the issuance of 2,394,774 Class B LP units at $11.30 per unit. The addition is currently being constructed and the acquisition is expected to close in Q2 2023. The purchase price represents a 6.0% going-in capitalization rate.
An approximately 83,000 square foot brand new, single-tenant industrial distribution property in the Calgary area. The acquisition is expected to close in the first half of 2024.

The acquisitions under firm contract have an aggregate purchase price of $199.5 million at a weighted average capitalization rate of 5.0%

Under Diligence

Approximately 305,000 square foot single tenant industrial distribution property in Southwestern Ontario. The property includes a brand new ~160,000 square foot expansion and features 32-foot clear heights, 45 truck-level doors and 8 drive-in doors. The lease has a 10-year term, starting upon construction completion. The acquisition will, subject to Toronto Stock Exchange approval, be funded by the issuance of approximately $24 million of Class B LP units at $10.30 per unit and the assumption of existing mortgage financing. This acquisition is expected to close May 1, 2023.

March 2023 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 April 14, 2023 to unitholders of record as of March 31, 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 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 11.6 million square feet of gross leasable area. The REIT has approximately 67,906,000 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 19,862,000 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.

http://rt.newswire.ca/rt.gif?NewsItemId=C7591&Transmission_Id=201402041821CANADANWCANADAPR_C7591&DateId=20140204

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 December 31,						Year ended December 31,
	2022		2021		Change		2022		2021		Change
FFO	$		$		$		$		$		$

Net income	(16,891	)	44,760		(61,651	)	120,068		93,539		27,329
Adjustments:
Loss on disposal of investment properties	455		497		(42	)	710		592		118
Fair value adjustment of investment properties	8,092		(32,026	)	40,118		12,605		(132,396	)	145,001
Fair value adjustment of Class B LP Units	26,554		(1,765	)	28,319		(61,658	)	71,339		(132,997	)
Fair value adjustment of unit options	230		(24	)	254		(378	)	1,774		(2,152	)
Fair value adjustment of restricted share units	119		(9	)	128		(250	)	309		(559	)
Fair value adjustment of derivative financial instruments	(163	)	(534	)	371		(17,528	)	(4,920	)	(12,608	)
Fair value adjustment of investments	(3,500	)	-		(3,500	)	(3,500	)	-		(3,500	)
Adjustments for equity accounted joint venture ⁽¹⁾	(1,735	)	45		(1,780	)	(1,118	)	(257	)	(861	)
Distributions on Class B LP Units expensed	3,272		2,969		303		13,051		8,943		4,108
Amortization of tenant incentives and leasing costs	308		160		148		988		669		319
Lease principal payments	(12	)	(17	)	5		(46	)	(67	)	21
Amortization of right-of-use assets	24		23		1		93		93		-
Deferred income taxes	-		-		-		-		40		(40	)
Funds from operations (FFO)	16,753		14,079		2,674		63,837		39,658		24,179
Weighted average units outstanding (000s) - basic⁽⁵⁾	81,494		68,508		12,986		79,287		51,914		23,373
FFO per unit – basic	0.206		0.206		-		0.805		0.764		0.041

FFO	16,753		14,079		2,674		63,837		39,658		24,179
Add: Vendor rent obligation⁽²⁾	564		611		(47	)	2,535		2,473		62
Less: Other income⁽²⁾	(801	)	(1,402	)	601		(2,403	)	(2,384	)	(19	)
Add: TSX graduation listing fees⁽³⁾	-		-		-		-		207		(207	)
Normalized FFO	16,516		13,288		3,228		63,969		39,954		24,015
Weighted average units outstanding (000s) Basic⁽⁵⁾	81,494		68,508		12,986		79,287		51,914		27,373
Normalized FFO per unit - basic	0.203		0.194		0.009		0.807		0.770		0.037

(In thousands of Canadian dollars, except per unit amounts)	Three months ended December 31,					Year ended December 31,
	2022		2021	Change			2022		2021	Change
AFFO	$		$		$		$		$		$

FFO	16,753		14,079		2,674		63,837		39,658	24,179
Adjustments:
Straight-line adjustments ground lease and rent	(821	)	(460	)	(361	)	(3,505	)	(887	)	(2,618	)
Capital reserve⁽⁴⁾	(1,300	)	(1,000	)	(300	)	(5,100	)	(3,125	)	(1,975	)
Adjusted funds from operations (AFFO)	14,632		12,619		2,013		55,232		35,646		19,586
Weighted average units outstanding (000s) - basic ⁽⁵⁾	81,494		69,508		12,986		79,287		51,914		27,373
AFFO per unit - basic	0.180		0.184		(0.004	)	0.697		0.687		0.010

AFFO	14,632		12,619		2,013		55,232		35,646		19,586
Add: Vendor rent obligation ⁽²⁾	564		611		(47	)	2,535		2,473		62
Less: Other income ⁽²⁾	(801	)	(1,402	)	601		(2,403	)	(2,384	)	(19	)
Add: TSX graduation listing fees ⁽³⁾	-		-		-		-		207		(207	)
Normalized AFFO	14,395		11,828		2,567		55,364		35,942		19,422
Weighted average units outstanding (000s) - basic ⁽⁵⁾	81,494		68,508		12,986		79,287		51,914		27,373
Normalized AFFO per unit - basic	0.177		0.173		0.004		0.698		0.692		0.006

(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 consolidated 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 year ended December 31, 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 December 31,						Year ended December 31,
Same Property NOI	2022		2021		Change		2022		2021		Change
	$		$		$		$		$		$

Property revenues	36,856		27,537		9,319		137,121		83,559		53,562
Property expenses	(11,907	)	(8,466	)	(3,441	)	(41,313	)	(27,607	)	(13,706	)
NOI	24,949		19,071		5,878		95,808		55,952		39,856
Add/(Deduct):
Amortization of tenant incentives and leasing costs	308		163		145		988		697		291
Straight-line adjustments of rent	(799	)	(440	)	(359	)	(3,418	)	(803	)	(2,615	)
Development	(90	)	-		(90	)	(360	)	-		(360	)
Acquisitions	(6,579	)	(975	)	(5,604	)	(52,547	)	(14,360	)	(38,187	)
Disposals	(67	)	(508	)	441		(1,214	)	(2,054	)	840
Termination fees and other non-recurring items	(41	)	(12	)	(29	)	(100	)	(26	)	(74	)
Same Property NOI	17,681		17,299		382		39,157		39,406		(249	)