Nexus Industrial REIT T.NXR.UN

TD Waterhouse Comments this morning

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Nexus Industrial REIT
(NXR.UN-T) C$7.79 Q4/23
 
First Look: Slight Miss, Encouraging Outlook
 
Impact: MIXED
 
Our Initial Take: We view the quarter as mixed, with Industrial occupancy rising 1% q/q to 99% and the upside to market rents widening to +29% from +25%, while Q4/23 NOI and FFO slightly missed our forecasts. We are encouraged by the focus on unitholder returns in management's outlook commentary. This also included a "low- to mid- 90% range" AFFO payout ratio expected in 2024 (vs. 100% in 2023 and implying AFFO/unit growth in line with/slightly ahead of our forecast). SPNOI growth guidance is mid- to high-single digits (despite weakness in Q1/24 due to a "key vacancy"), vs. 3.5% in 2023. Industrial property run-rate NOI concentration increased to 93%.
 
Q4/23 Results vs. Estimates: NFFO/unit of $0.18 was 4% below our forecast (and 6% below consensus), while our AFFO/unit calculation of $0.148 was 3% below our forecast. Severance/one-time compensation costs of $0.018/unit were added back to NFFO and AFFO. NOI was flat q/q despite acquisition activity and was 4% short of our forecast, mostly on higher opex.
 
Operations
 
Q4/23 Portfolio SPNOI growth increased 1.3% y/y, driven by rent steps and CPI increases at the REIT's Industrial properties, along with uplifts on new and renewal leases. Industrial SPNOI growth was +2.9%.
 
Industrial occupancy improved to 99% from 98% in Q3/23.
 
Development
 
Construction was completed in Q1/24 at the Richmond, BC sports complex, with the primary tenant "Belvedere Sports Club" expected to take occupancy in Q2/24.
 
In 2024, Nexus expects to complete four industrial development projects (one new[1]build, three intensifications) for a total cost of ~$146mm (7.7% average development yield). The four projects, once stabilized, are expected to add $11mm to NOI.
 
Disposition Update
 
Nexus is "well underway" on disposing its retail and office properties, and also expects to sell a portfolio of non-core industrial buildings (aggregate value: ~ $200mm). Closings are expected in H2/24 and proceeds are expected to be directed towards debt reduction.
 
Balance Sheet
 
Debt/Assets increased 40bps q/q to 48.9%. IFRS NAV/unit fell $0.02 q/q to $12.87 despite a $35.5mm fair-value gain