Revised Targets With fewer options for investors to gain exposure to the Canadian industrial real estate sector following Summit Industrial REIT’s $4.5-billion sale to Singapore’s giant sovereign wealth fund, National Bank Financial analyst Matt Kornack thinks Nexus Industrial REIT’s “trading prospects” are improving.
“With the take-out of Summit at attractive pricing we expect incremental investor demand as the REIT continues to re-focus into an institutional quality Canadian pure-play industrial REIT,” he said.
After the bell on Monday, the Toronto-based REIT reported in-line third-quarter results, which Mr. Kornack said displayed “stable occupancy, solid spreads and active growth profile.” Funds from operations per unit of 21 cents matched his forecast and represented a 2-cent improvement from the same period a year ago.
“Nexus’ Q3 results were largely in line with expectations and management remains optimistic about the trajectory in Q4 and into 2023 as they achieve sizable renewal spreads on maturities in their SW Ontario portfolio,” the analyst said. “Disposition activity continued in and subsequent to quarter-end but largely revolved around non-core industrial and retail properties with office asset sales on the back burner until market conditions normalize. In a market where liquidity has been hard to come by for some, NXR continued to benefit from strong relationship lending, providing access to capital and supporting an addition $300-million plus of purchasing power. This is enough to fund current acquisition and development commitments but will take leverage higher.”
Maintaining a “sector perform” recommendation for Nexus units, Mr. Kornack bumped his target to $10.75 from $9.75 with a “sector perform” rating. The average is $13.
“We are raising our target largely due to recent M&A activity supporting valuations within the pureplay Canadian industrial space. NXR’s progress on capital recycling along with activity post quarter and early 2023 forward purchases further cement the REIT’s transition away from noncore assets,” he said. “That said, execution risks remain with a residual 15-per-cent exposure to retail and office assets as well as upcoming capital commitments that will add to leverage.”
Elsewhere, others making changes include:
* IA Capital Markets’ Gaurav Mathur to $14 from $15.50 with a “strong buy” rating.
“The REIT has a long growth runway with rental rate increases that are much higher than its publicly listed peer set in the Canadian industrial sector,” said Mr. Mathur. “Post the recent M&A activity in the Canadian industrial sector, we agree with management that the REIT is well-positioned to be the next pure-play Canadian industrial REIT. Management continues to high-grade its portfolio while maintaining capital allocation discipline by focusing on redevelopment projects, recycling capital, and being opportunistic on the acquisitions front.”
* Canaccord Genuity’s Mark Rothschild to $12 from $11.75 with a “buy” rating.