National Bank Nexus Real Estate Investment Trust brings a “unique opportunity to own a portfolio of Canadian industrial properties in underappreciated markets,” according to National Bank Financial analyst Matt Kornack.
“Nexus provides investors access to a niche segment of the industrial market where supply/demand dynamics warrant higher rents,” he said. “Extremely tight urban markets are increasingly forcing tenants to search for space further afield as sub-1-per-cent availability rates limit choices while driving substantial rent escalation. The REIT is less likely to run into the same buyer base that is targeting in-demand urban assets, thus, cap rates/going in yields are more attractive.”
In a research report released Tuesday, Mr. Kornack initiated coverage of the Oakville, Ont.-based REIT with an “outperform” rating, touting its “niche industrial assets at an attractive” price” and seeing “reasonable structural attributes with a capacity for growth.”
“Nexus trades at an implied cap rate of approximately 5.3 per cent,” he said. “Purchase cap rates for 2021 came in at the mid-to-high 5-per-cent range with purchases after the end of the year trending into the lower 5-per-cent range. When combined with accommodative debt markets, given lenders preferential view on the asset class, Nexus can accretively expand its portfolio generating economies of scale along the way.
“Since Q2/21, Nexus has raised $326 million of equity to fund the purchase of $750 million of real estate, with an additional $170 million subject to a forward purchase agreement. The REIT has access to the capital markets and a dedicated investor base.”
Also touting its experienced management team “with a track record sourcing deals and nurturing a pipeline via vendor relationships,” he set a $14 target for Nexus units. The average is $14.41.
“:From a public company standpoint, the industrial landscape in Canada is small with only one pure-play domestic offering,” said Mr. Kornack. “Given investor appetite for exposure to this market and asset class, we see an opportunity for continued support and transformation of Nexus. Secondary market exposure also differentiates it from the other larger names as they tend to own portfolios in the GTA, Montreal and Calgary where growth has been inhibited by exceptionally low cap rates. As Nexus becomes more established, the likelihood of a multiple convergence with peers is probable, particularly, as fundamentals advance outside larger supply constrained markets. Furthermore, the name screens well in the current market where investors have been value focused as it owns a portfolio with improving operating performance but trades at a valuation consistent with the broader REIT universe.”