Nexus Industrial REIT had a busy and successful 2022 and isn’t slowing down in 2023. One major acquisition is complete and other purchases and developments are in the works, as it continues to increase the industrial weighting of its portfolio.

“It was a tough year in the capital markets on the equity raise, so that kept growth smaller,” Nexus chief executive officer and trustee Kelly Hanczyk told RENX. “But coming into this year we've put a real emphasis on high-grading this portfolio to make it institutional quality.

“So I think at the end of the day, when you look at it as a whole, our portfolio is looking extremely attractive and has pretty good growth potential from both in-place and below market rents, and the amount of land that we're able to develop on. 

“When you’re developing and not purchasing land, your returns are much higher. So it looks like 2023 will be a good, solid year for us.”

Oakville-headquartered Nexus (NXR-UN-T) was formed in 2013. It owns 113 properties comprising approximately 11.6 million square feet of gross leasable area. 

Recent and upcoming acquisitions

After making $316.8 million in industrial property acquisitions in 2022, Nexus closed on a 532,000-square-foot, new class-A distribution centre in Casselman, Ont. (just east of Ottawa) for $116.8 million from developer Rosefellow on March 7. 

The property is leased long-term to Ford Motor Company of Canada and features 36-foot clear heights, 43 dock-level doors and two drive-in doors.

Nexus also has these four industrial properties under firm contract that have an aggregate purchase price of $199.5 million at a weighted average capitalization rate of five per cent:

• A new, approximately 140,000-square-foot single-tenant distribution property under construction in Burlington, Ont. features 32-foot clear heights, 28 loading doors and two dock doors. Its lease has a seven-year term, starting upon completion. The acquisition is to close July 4.
• A new, approximately 190,000-square-foot single-tenant distribution property under construction in the Greater Montreal Area features 32-foot clear heights, 28 truck-level doors and one drive-in door. Its lease has a seven-year term, starting upon completion. The purchase is set to close June 1.
• A new, approximately 83,000-square-foot single-tenant distribution property in the Calgary area is expected to close in the first half of 2024.
• An approximately 325,000-square-foot industrial property in London, Ont., including an under-construction 175,000-square-foot addition, is expected to close in August. 

Nexus also has an approximately 305,000-square-foot single-tenant distribution property in London under diligence.

The property includes an under-construction 160,000-square-foot expansion and features 32-foot clear heights, 45 truck-level doors and eight drive-in doors. Its lease has a 10-year term, starting upon completion. 

That purchase is expected to close on May 1. It will, subject to Toronto Stock Exchange approval, be funded by the issuance of approximately $24 million of Class B LP units at $10.30 per unit and the assumption of existing mortgage financing. 

Nexus’ unit price closed at $9.66 on April 12. That’s near the lower end of its respective 52-week high and low prices of $14.03 and $8.15. The REIT had a market cap of approximately $664 million.

Development activity

This will also be a busy year on the development front.

Nexus acquired 80 per cent interests in two development sites in Hamilton for $22.6 million in 2022. It anticipates being able to develop approximately 358,000 square feet of class-A industrial space, with construction completion anticipated for early and late 2024.

The REIT will break ground in April on a 312,000-square-foot industrial building on 23 acres of land it owns in Regina. It has secured a tenant that will take a minimum of 205,000 square feet.

Nexus will also break ground in April on a 100,000-square-foot addition to a property in London, with plans to lease it to an existing tenant.

“We have a ton of land attached to the properties that we have and London has less than one per cent vacancy and not really anything coming out of the ground, so from a rental standpoint the fundamentals are really strong,” Hanczyk said.

Nexus is the most active developer in London, according to Hanczyk, who expects the REIT’s performance in the Southwestern Ontario city to remain strong.

The trust is also looking to expand industrial buildings with existing tenants in St. Thomas and Windsor this year and has identified about 550,000 square feet of potential additional expansion for existing buildings for 2024.

Retail dispositions

Nexus sold off two small properties for $12.8 million in Q4 2022. One was a retail/office building in Longueuil, Que. and the other a bank branch in Prince Edward Island that was the first property purchased by the REIT.

“It goes along with our continuing drive to be 100 per cent industrial in a couple of years,” Hanczyk said. “We’re repurposing and recycling capital out of retail to put into industrial.” 

Nexus has a firm offer to sell an unenclosed shopping centre in Victoriaville, Que.

The deal for its largest wholly owned stand-alone retail property is expected to close this month.

The sale of the unenclosed mall — which includes Metro, Canadian Tire and Dollarama stores — will increase the trust’s industrial weighting to more than 90 per cent of net operating income (NOI).

Eighty-eight per cent of NOI came from industrial properties in Q4 2022, up from 81 per cent a year earlier.

Nexus received an unsolicited offer to purchase a small portfolio of industrial properties in Saskatchewan last year. It made it to the due diligence stage before talks ended.

“We’re finding a lot of the smaller buyers are having trouble getting the proper debt leverage that they need to close, so we pulled it from them,” Hanczyk said.

The Saskatchewan properties have “nice rental rate increases over the next several years,” according to Hanczyk, so it was decided to keep them for now.

Increased net operating income

Nexus’ NOI rose 71.2 per cent to $95.8 million in 2022, while fourth-quarter same-property NOI rose 2.2 per cent to $17.7 million from a year earlier. 

The trust had an occupancy rate of 97 per cent to close 2022, up from 96 per cent a year earlier.

Nexus had a debt-to-total-assets ratio of 43.7 per cent on Dec. 31. Its lines of credit had $97.5 million of availability and it had $84.7 million of unencumbered properties.

“We’ll close what we have under contract with the cash that we have on hand and using our units as currency for this year, and I think we’ll start to focus on the outsized returns from the development side that will really boost things in 2024,” Hanczyk said.