From todays Globe and Mail Mr. Kornack of National Bank is much more upbeat on the prospects of Nexus Industrial REIT , which has been transitioning into a pureplay industrial real estate firm. He upgraded Nexus to “outperform” from “sector perform” while raising his price target to C$8 from C$7.5. He said the REIT is now well into its transitioning into the industrials space, “and appears to be emerging from some operational / capital allocation challenges with a better outlook for near-term earnings growth.”
“In light of this improving backdrop and a mid-7% implied cap rate we think the current entry point looks attractive for investors looking to add a industrial exposure,” he said.
National Bank has increased confidence in NXR’s sector leading growth profile for 2025. The analyst is forecasting NXR to have growth of about 19% funds from operations per unit growth in 2025 versus peers at about 8%. “Additionally, NXR has $140 million in developments coming online by year-end at an average 7.6% unlevered yield, which should further support fiscal year 2025 earnings growth,” he said.
He added that Nexus has a strong foothold in southwestern Ontario and with it, beneficial private operator partnerships. “About 40% of Nexus’ portfolio is located in SW Ontario with the bulk of this space in London (as well as some well-located assets in St.Thomas, a future EV battery hub). London has fared very well relative to other markets given its proximity to transit corridors and limited new development. Additionally, Nexus is well acquainted with private market players in SW Ontario, providing access to a high-quality asset pipeline, local tenant relationships and a development platform.”
“NXR is now 90+% industrial following the completion of an acquisition spree that drove higher leverage through much of 22/23. With that said, management has committed to debt reduction, reining in spending with the ultimate goal of receiving an investment grade credit rating. Lower leverage combined with a strong near-term growth profile and well located portfolio de-risks the balance sheet and provides more certainty on earnings (management is comfortable in their $200 million disposition pipeline, which will help solidify confidence in the name),” Mr. Kornack said.