Believing its recent valuation pullback offers an “excellent buying opportunity,” Raymond James analyst Brad Sturges upgraded Nexus Real Estate Investment Trust to “strong buy” from “outperform,” touting its “improving FD AFFO/unit growth outlook, and several possible near-term positive catalysts that may support a further re-rate in Nexus’ P/AFFO multiple.”
Mr. Sturges emphasized industrial acquisition activity is “off to a fast start” in 2022 after Nexus “achieving transformational external growth” last year.
“Earlier this week, Nexus provided an acquisition update,” he said. “In 4Q21, Nexus completed various transactions in Montreal, London, Windsor, Regina, Moncton, and Alberta, totaling approximately $416-million (average cap rate: 5.3 per cent). In 2021, Nexus bought 24 industrial assets comprising 4.7 million square feet of GLA, for $685-million (average cap rate: 5.8 per cent). In 2022 year-to-date, Nexus has acquired or intends to buy various industrial properties in London, ON, Montreal, QC, Regina SK, and Edmonton, AB for $237-million (average cap rate: 5.1 per cent). In 2023, Nexus also has under contract to buy newly constructed Ontario industrial assets for $167-million (estimated cap rate: 5.1 per cent).”
Seeing the planned sale of non-core office and retail assets a “key potential near-term positive catalyst,” Mr. Sturges maintained a target of $14.50 for Nexus units. The current average on the Street is $14.45.
“Pending TSX approval, Nexus intends to change its name to Nexus Industrial REIT to reflect its ongoing transformation into a pure-play Canadian industrial REIT, he said. “We believe Nexus still offers attractive P/AFFO multiple expansion potential, which may be supported by several near-term positive catalysts, including: 1) increasing its industrial facility weighting to over 90 per cent; 2) the execution of non-core asset sales; 3) improving organic and FD AFFO/unit growth year-over-year in 2022; and 4) the completion of ongoing and identified value-add redevelopment and expansion projects.”