BMO analyst flash updateFirst Look: Q3/21 in Line; Industrial Transformation Tempo Continues
Bottom Line:
NXR.UN reported Q3/21 FFO/unit of $0.190, -12.8% y/y (higher unit count), a touch lower than BMO Research's estimate ($0.20) but in line with consensus ($0.19). Relative to us, the slight variance was primarily due to modestly lower top line (by $1M) and higher net interest expense, partially offset by lower operating expenses and G&A cost. Overall, we'd characterize Q3/21 as mostly in line; we remain encouraged by NXR.UN's steady industrial acquisition cadence and portfolio transformation.
Key Points
Two specific properties continue to weigh on SPNOI but leasing continues to progress. In Q3/21, SPNOI was -2.1% y/y, due primarily to an office space (26K sf) in St. John that was returned to the REIT in April and an industrial vacancy totalling 25K sf in Calgary. Leasing continues to progress with new leases signed for ~6.5K sf of the office space (commenced on July 1, 2021). Overall occupancy remained stable q/q at 95% in Q3/21 (+20 bps y/y).
Acquisition cadence continues. In Q3/21, NXR.UN acquired five industrial properties for $95.5M (all located in Alberta). Subsequent to quarter-end, the REIT has completed $285.9M of industrial acquisitions in October and November to date. NXR.UN has also waived conditions to acquire a Class A distribution centre in Alberta for US$15.3M. Management highlighted that the acquisition pipeline continues to be very active.
Another bump in FV. Nexus recorded $26.3M of fair value gains in Q3/21, driven once again mostly by the revaluation of the Richmond, BC, project (buildout is near completion and tenant leases will soon commence), but also some FV gains in some of the REIT's industrial properties in Ontario, Western Canada, and certain office properties in Montreal. Overall weighted average cap rate declined by -10bps q/q to 5.83%. Reported IFRS NAV/unit increased to $11.55 in Q3/21 from $11.21 in Q2/21 and $9.83 in Q3/20.
Financial position. NXR.UN's leverage improved further to 36.6% in Q3/21 (-380bps q/ q), driven by the combination of recent equity raises as well as an increase in fair value of the REIT's investment properties. At the end of Q3/21, NXR.UN maintained a total liquidity of $108M ($63M cash on hand and $45M undrawn capacity on credit facilities).
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