TORONTO and MONTREAL, May 12, 2022 (GLOBE NEWSWIRE) -- Nexus Industrial REIT (the “REIT”) (TSX: NXR.UN) announced today its results for the quarter ended March 31, 2022.
Highlights
Completed $236.4 million of industrial property acquisitions during Q1 2022, increasing NOI from industrial properties to approximately 84.4% of NOI for the quarter. To partially fund the acquisitions the REIT completed $127.3 million of new mortgage financing at a weighted average interest rate of 3.25% and a term of 7.8 years.
On January 1, 2022 the 100,000 square foot expansion at the REIT’s co-owned Ajax industrial property was completed by the vendor, with the tenant in-place and paying rent.
As part of its capital-recycling program, the REIT has determined to sell five non-industrial properties with a carrying value of $54.9 million that are under negotiation or being marketed.
Occupancy of 97% at March 31, 2022, increased from 96% at December 31, 2021 and 94% at March 31, 2021.
Q1 2022 net operating income of $22.0 million increased by $11.5 million or 108% as compared to $10.6 million for Q1 2021 and by $3.0 million or 15% as compared to $19.1 million for Q4 2021.
Q1 2022 Same Property NOI(1) of $10.1 million decreased by $0.3 million or 3.2% as compared to Q1 2021 and by $0.3 million or 3.2% as compared to Q4 2021. The decreases are primarily attributable to vacancies at one of the REIT’s office properties and an industrial property in Regina. Efforts to re-lease the spaces are underway, and discussions are being held with prospective new tenants.
As at March 31, 2022, the REIT had $150 million of recently acquired properties which were unencumbered. Once these properties are financed and the proceeds are deployed to acquire additional properties, the proceeds of 2021 equity raises will be fully deployed.
Q1 2022 Normalized FFO(1) per unit of $0.192, as compared to $0.194 for Q4 2021 and $0.203 for Q1 2021.
Q1 2022 Normalized AFFO(1) per unit of $0.165, as compared to $0.173 for Q4 2021 and $0.183 for Q1 2021.
Q1 2022 Normalized AFFO payout ratio(1) of 96.7%, as compared to 96.5% for Q4 2021 and 87.7% for Q1 2021.
General and administrative expense for the quarter included a $0.6 million RSU expense with RSUs granted and 1/3 vested in the quarter. Q2 2022 RSU expense is anticipated to decrease to $0.15 million.
Weighted average interest rate on mortgages of 3.29% at March 31, 2022, compared to at 3.28% at December 31, 2021, as the REIT managed acquisition financing in a rising interest rate environment, and down from 3.62% at March 31, 2021. At the same time, the weighted average term to maturity increased to 6.71 years at March 31, 2022 from 6.61 years at December 31, 2021 and 3.76 years at March 31, 2021.
NAV(1) per unit increased to $12.35 at March 31, 2022 as compared to $12.18 at December 31, 2021 and $10.09 at March 31, 2021.
Management of the REIT will host a conference call on Friday May 13th at 11AM EST to review results and operations
(1)
Non-IFRS Financial Measure
“We acquired $236.4 million of industrial properties, on average half-way through the 1st quarter, and we will see the full positive impact of these acquisitions in the second quarter. We are extremely pleased with the quality of the properties acquired and the opportunities for expansion and rental rate increases that several of these properties offer. These properties were under contract prior to cap rate contraction, and we financed them prior to recent interest rate hikes,” commented Kelly Hanczyk, the REIT’s Chief Executive Officer. “We are realizing significant lift in renewal rental rates in our London and Montreal industrial portfolios that will begin to show in the 3rd and 4th quarters of this year. There are 5 retail and office properties that are currently being marketed or under negotiation for disposition and we are preparing to launch on the sale of a sixth retail property shortly. As we continue to grow our asset base we have recently added depth to our management team as there are a number of acquisition opportunities we are actively pursuing. We expect to continue to increase our industrial weighting in 2022.”
Summary of Results
Included in the tables that follow 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 months ended March 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.
(In thousands of Canadian dollars, except per unit amounts)
Three Months ended March 31,
2022
2021
Financial Results
$
$
Property revenues
31,699
16,588
Net operating income (NOI)
22,024
10,566
Net income
18,064
10,209
Financial Highlights
Funds from operations (FFO)(1)
14,724
6,684
Normalized FFO(1) (2)
14,879
7,321
Adjusted funds from operations (AFFO)(1)
12,678
5,954
Normalized AFFO(1) (2)
12,833
6,591
Same Property NOI(1)
10,052
10,385
Distributions declared(3)
12,412
5,777
Weighted average units outstanding (000s) - basic(4)
77,560
36,041
Weighted average units outstanding (000s) - diluted(4)
77,720
36,124
Per unit amounts:
Distributions per unit - basic(3) (4)
0.160
0.160
FFO per unit - basic(1) (4)
0.190
0.185
Normalized FFO per unit - basic(1) (2) (4)
0.192
0.203
AFFO per unit - basic(1) (4)
0.163
0.165
Normalized AFFO per unit - basic(1) (2) (4)
0.165
0.183
NAV per unit(1)
12.35
10.09
Normalized AFFO payout ratio - basic(1) (2) (3)
96.7%
87.7%
Debt to total assets ratio
45.4%
45.8%
(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.
For the three months ended March 31, 2022, NOI of $22.0 million was $11.5 million higher than Q1 2021 NOI of $10.6 million. Acquisitions completed in Q1 2022 generated $1.6 million of incremental NOI in Q1 2022 as compared to Q1 2021. Acquisitions completed in 2021 generated $9.5 million of incremental NOI in Q1 2022 as compared to Q1 2021. Incremental rental income from the completion of an expansion at the REIT’s Ajax property increased Q1 2022 NOI by $0.1 million as compared to Q1 2021. Q1 2022 Same Property NOI decreased $0.3 million as compared to Q1 2021, primarily driven by vacancy at one of the REIT’s office properties ($0.3 million) and an industrial property ($0.1 million), partially offset by rental steps and CPI increases at certain of the REIT’s industrial properties. Straight-line rents also contributed $0.7 million to the increase over Q1 2021, driven primarily by newly acquired properties with steps in rent. Occupancy remained strong at 97% at March 31, 2022 compared to 96% at December 31, 2021 and 94% at March 31, 2021. Acquisitions completed in Q1 2022 were on average completed mid-quarter and will contribute approximately twice as much NOI in Q2 2022.
Fair value adjustments of investment properties of $1.9 million for Q1 2022 reflects $8.9 million of fair value gains primarily related to compression of capitalization rates for industrial properties located in certain markets in Ontario and Western Canada, partially offset by $6.8 million related to transaction costs and acquisition accounting adjustments on properties acquired during the quarter with Class B LP Units issued as consideration or mortgages assumed.
Earnings Call
Management of the REIT will host a conference call at 11:00 AM Eastern Standard Time on Friday May 13, 2022 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 June 13, 2022. 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 8875.
Annual Meeting Voting Results
Each of the matters set out in the REIT’s management information circular dated March 28, 2022 (the “Circular”) for the annual meeting of unitholders held on May 12, 2022 (the “Meeting”) was approved by the requisite majority of unitholders.
Each of the trustee nominees listed in the Circular was elected as a trustee of the REIT. Voting results for the individual trustees are as follows:
Nominee
Number of Votes For
Percentage of Votes For
Number of Votes Withheld
Percentage of Votes Withheld
Floriana Cipollone
38,222,014
99.51%
189,934
0.49%
Bradley Cutsey
38,277,775
99.65%
134,173
0.35%
Justine Delisle
36,960,129
96.22%
1,451,819
3.78%
Louie DiNunzio
37,195,341
96.83%
1,216,607
3.17%
Kelly C. Hanczyk
34,751,729
90.47%
3,660,219
9.53%
Ben Rodney
35,810,046
93.23%
2,601,902
6.77%
Final results on all matters considered at the Meeting are reported in the Report of Voting Results as filed on SEDAR (www.sedar.com).
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 potentially including the United States, and the ownership and management of its portfolio of properties. The REIT currently owns a portfolio of 106 properties comprising approximately 10.5 million square feet of gross leasable area. The REIT has approximately 57,952,000 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 20,773,000 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 March 31,
2022
2021
FFO
$
$
Net income
18,064
10,209
Adjustments:
Loss on disposal of investment properties
-
95
Fair value adjustment of investment properties
(1,925
)
(5,096
)
Fair value adjustment of Class B LP Units
3,692
4,236
Fair value adjustment of unit options
142
166
Fair value adjustment of restricted share units
42
48
Fair value adjustment of derivative financial instruments
(8,467
)
(3,873
)
Adjustments for equity accounted joint venture(1)
(304
)
(267
)
Distributions on Class B LP Units expensed
3,205
995
Amortization of tenant incentives and leasing costs
265
144
Lease principal payments
(13
)
(16
)
Amortization of right-of-use assets
23
23
Deferred income taxes
-
20
Funds from operations (FFO)
14,724
6,684
Weighted average units outstanding (000s) - basic(5)
77,560
36,041
FFO per unit – basic
0.190
0.185
FFO
14,724
6,684
Add: Vendor rent obligation(2)
555
630
Less: Other income(2)
(400
)
(200
)
Add: TSX graduation listing fees(3)
-
207
Normalized FFO
14,879
7,321
Weighted average units outstanding (000s) - basic(5)
77,560
36,041
Normalized FFO per unit – basic
0.192
0.203
(In thousands of Canadian dollars, except per unit amounts)
Three Months ended March 31,
2022
2021
AFFO
$
$
FFO
14,724
6,684
Adjustments:
Straight-line adjustments ground lease and rent
(796
)
(105
)
Capital reserve(4)
(1,250
)
(625
)
Adjusted funds from operations (AFFO)
12,678
5,954
Weighted average units outstanding (000s) - basic(5)
77,560
36,041
AFFO per unit - basic
0.163
0.165
AFFO
12,678
5,954
Add: Vendor rent obligation(2)
555
630
Less: Other income(2)
(400
)
(200
)
Add: TSX graduation listing fees(3)
-
207
Normalized AFFO
12,833
6,591
Weighted average units outstanding (000s) - basic(5)
77,560
36,041
Normalized AFFO per unit - basic
0.165
0.183
(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 condensed consolidated interim 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 period ended March 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 March 31,
2022
2021
Same Property NOI
$
$
Property revenues
31,699
16,588
Property expenses
(9,675
)
(6,022
)
NOI
22,024
10,566
Add/(Deduct):
Amortization of tenant incentives and leasing costs
