From TD: THE TD COWEN INSIGHT
NXR's in-line Q2 results and positive outlook reiteration boosted confidence that future
results will be far less likely to disappoint. With a concentration in Canadian industrial
property exceeding 90% (and moving toward 100%), we believe further successful
execution will enable NXR to achieve a stronger investor following, particularly if exposure
to primary markets grows.
Impact: SLIGHTLY POSITIVE
Our target price increase to $8.00 (from $7.50) reflects increased confidence in NXR
meeting/exceeding estimates and charting a path to sustainable AFFO growth. Our target
valuation multiple is now ~20% below the average of the two large pure-play industrial
peers, vs. a discount range of 20%-25% previously.
Our forecast is largely unchanged, and with our new 2026 estimates we now expect a
three-year AFFO/unit CAGR of 1%, but rising to a 7% two-year AFFO/unit CAGR when
using 2024 trough earnings as the starting year. With $200mm of dispositions in our model
through 2025 and no acquisitions, we forecast Debt/EBITDA to peak at a relatively high
level of 10.5x on average in 2024, then decline to 9.7x in 2025 and 9.3x in 2026. Our $8.60
NAV/unit estimate is largely unchanged (-$0.10).
NXR made good progress in Q2 by putting 28 non-core properties under contract for
disposition. Targeted dispositions include the old Montreal Office portfolio (expected to
close between Sep-Oct/24), Retail portfolio (November close) and a small portfolio of
Saskatchewan industrial properties (Jan-25 close). NXR took its 2024 non-core disposition
target down to $110mm from $200mm, with the difference (mainly represented by the
Westcan truck terminals and Les Halles d'Anjou) likely being disposed later, perhaps in
2025.
As NXR gets closer to being ready for a new phase of growth, management cited
Southwestern Ontario and the Greater Toronto Area as priority expansion markets.
As the REIT with the highest concentration in Canadian industrial property, NXR has the
potential to be a focus name for investors. We see potential for success on dispositions,
reducing balance-sheet leverage, meeting/exceeding expectations, and resuming
sustainable AFFO/unit growth.