Nexus Real Estate Investment Trust (
NXR-UN-T is “becoming the next industrial pure play,” according to Echelon Capital analyst David Chrystal, who sees “exceptional” industry fundamentals supporting its growth.
He
initiated coverage of the Oakville, Ont.-based REIT with a “buy” rating on Tuesday.
“Nexus REIT underwent a transformative 2021, acquiring nearly $700-million of industrial assets and advancing management’s strategy of becoming an industrial pure play,” he said in a research report “An aggressive acquisition strategy, which we expect to continue through 2022, has significantly increased the REIT’s exposure to the exceptionally strong industrial market, which should support organic growth going forward. Despite an impressive unit price performance in 2021, the
REIT continues to trade at a discount to the industrial peer group, and in our view, this gap should narrow over time as it increases its industrial weighting through acquisitions and dispositions of non-industrial assets.”
Mr. Chrystal called Nexus’ acquisition push “significant,” noting it has announced $1.1-billion in deals, doubling its portfolio in 2021 with $400-million under contract to close in 2022 and 2023.
“Rapidly increasing demand for industrial space in an already tight market supports management’s strategic shift to focus entirely on industrial assets, in our view,” he said. “National industrial availability has hit a historic low, dipping below 2 per cent after an exceptional year of leasing in 2021, while
industrial rents increased more than 10 per cent year-over-year. Demand for industrial assets remains elevated, driving cap rate compression, which combined with higher rents, drove a
28-per-cent year-over-year increase in asking prices for industrial properties in 2021. New supply is not likely to provide any relief, as more than two-thirds of space currently under construction is either build-to-suit or speculative development that is already pre-leased.
“Despite intense competition for industrial assets, we believe
that management has demonstrated its ability to source and complete off-market transactions. We expect the REIT will continue to leverage its management team and board to source deals, and complete its industrial transformation.
Though we do not include any speculative acquisitions in our forecast,
we believe there could be meaningful upside to our 2023 estimated FFO [funds from operations] per unit (7-12 per cent) should management complete incremental acquisitions in line with the volumes seen in 2021.”
Mr. Chrystal set a target of
$14.50 per unit. The average on the Street is currently $14.45.