Nexus Industrial REIT Q3 2026 Earnings Results & Report

Nexus Industrial REIT EPS Results

• Actual EPS: C$0.33
• Consensus EPS: N/A
• Beat/Miss: N/A
• One Year Ago EPS: N/A

Nexus Industrial REIT Revenue Results

• Actual Revenue: C$45.74 million
• Expected Revenue: N/A
• Beat/Miss: N/A
• YoY Revenue Growth: N/A

Nexus is a growth-oriented real estate investment trust focused on increasing unitholder value through the acquisition of industrial properties located in primary and secondary markets in Canada, and the ownership and management of its portfolio of properties. The REIT currently owns a portfolio of 87 properties comprising approximately 12.3 million square feet of gross leasable area. The REIT has approximately 97,097,000 voting units issued and outstanding, including approximately 73,490,000 REIT Units and approximately 23,607,000 Class B LP Units of subsidiary limited partnerships of Nexus, which are convertible to REIT Units on a one-to-one basis.

Nexus Industrial REIT Q3 2026 Earnings Call Transcript

Key Takeaways

• Positive Sentiment: Nexus reported 7.8% year-over-year NOI growth to CAD 34.7 million, 97% occupancy and 4.2% industrial same-property NOI growth. Renewals achieved an average 29% rent lift, while normalized AFFO per unit rose to CAD 0.166.
• Negative Sentiment: Management now expects full-year industrial same-property NOI growth of 3%–4%, citing the Calgary property sale and slower lease-up in Calgary and London. It still expects the full-year normalized AFFO payout ratio to remain below 100%.
• Positive Sentiment: A CAD 300 million bond offering at a 4.563% coupon left Nexus’s CAD 585 million credit facility virtually undrawn and extended its debt maturity profile. Management expects lower borrowing costs and greater financing flexibility.
• Neutral Sentiment: Nexus is pursuing data-infrastructure opportunities, starting with a Richmond project requiring an estimated CAD 60.3 million investment and targeting up to 9.9 MW of capacity. Leasing discussions are active but no tenant deal was announced; power approvals remain a dependency, and management says the units could instead serve micro-industrial or storage uses.
• Positive Sentiment: Nexus signed a 10-year lease for its 115,000-square-foot Hamilton development, expected to begin contributing income in Q2 2027, and leased eight of nine units at its Calgary development. The company also advanced property sales as part of its capital-recycling program.

Presentation

[Operator]

Thank you for standing by. This is the conference operator. Welcome to the Nexus Industrial REIT Third Quarter 2026 Results Conference Call. As a reminder, all participants are in listen-only mode, and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. To join the question queue, you may press star then one on your telephone keypad. Should you need assistance during the conference call, you may signal an operator by pressing star then 0. I would now like to turn the conference over to Kelly Hanczyk, Chief Executive Officer. Please go ahead.

[Kelly Hanczyk, CEO at Nexus Industrial REIT]

Thank you. I'd like to welcome everyone to the 2026 Third Quarter Results Conference Call for Nexus Industrial REIT. Joining me today is Mike Rawle, Chief Financial Officer of the REIT. Before we begin, I'd like to caution with regard to forward-looking statements and non-GAAP measures. Certain statements made during this conference call may constitute forward-looking statements, which reflect the REIT's current expectations and projections about future results. Also, during this call, we'll be discussing non-GAAP measures. Please refer to our MD&A and the REIT's other securities filings, which can be found on our website and at sedarplus.ca for cautions regarding forward-looking information and for information about non-GAAP measures. The third quarter was an excellent quarter for Nexus. We delivered sequential and year-over-year growth in net operating income, normalized FFO, normalized AFFO, and last 12 months Adjusted EBITDA.

[Kelly Hanczyk, CEO at Nexus Industrial REIT]

These improvements reflect strong operating results, while we also advanced three strategic initiatives. First, in September, we completed our third investment-grade bond offering of the year, which has transformed our capital structure. Second, we advanced our capital recycling and focused our portfolio further by closing on property sales at 40th Avenue in Red Deer, Alberta, and surplus land in Blackfalds, Alberta, in October after quarter end. Third, we advanced our sub-strategy infill development projects in British Columbia, which have the potential to be significant growth opportunities for Nexus. I will first review our operating performance, then provide an update on financing, capital recycling, and development before closing with our outlook for the balance of 2026. In the third quarter, we delivered another quarter of excellent operating performance. We renewed 225,000 sq ft at an average rent lift over in place and expiring rents of 29%.

[Kelly Hanczyk, CEO at Nexus Industrial REIT]

Of this, 150,000 sq ft was at the building in London, Ontario, where we were able to negotiate rents from CAD 7.50 per square foot to CAD 9.75 per square foot net, with healthy 2.75% escalators and a seven-year lease term. In Quebec, we renewed three smaller units for a total of 37,000 sq ft for an average lift, average of lift of 34%. These renewals resulted in industrial same property NOI growth of 4.2% and demonstrate our continued ability to capture the market lift on renewals. At September 30th, we had an attractive average spread between market and in-place rents of 14.6%. We also leased an additional 36,000 sq ft of vacant space in the quarter, resulting in a strong 97% occupancy at September 30th. This healthy occupancy, combined with our recent completed developments, expansions, and acquisitions, grew net operating income by 7.8% from a year ago to CAD 34.7 million.

[Kelly Hanczyk, CEO at Nexus Industrial REIT]

Normalized FFO increased to CAD 18.8 million, and on a last 12 months basis, Adjusted EBITDA grew to CAD 123.8 million. For the quarter, we posted normalized AFFO per unit of CAD 0.166, resulting in a payout ratio of 95.6%, as we remain on track to deliver a full year 2026 payout ratio below 100%. Looking at our fourth quarter renewals, we have approximately 270,000 sq ft remaining for renewal. Of this amount, we have already renewed or expect to renew over 75,000 sq ft. The remaining space includes a 90,000 sq ft strategic vacancy in Montreal, where the tenant was paying CAD 9 per sq ft, which is well below market rent. This lease comes due at the end of November.

[Kelly Hanczyk, CEO at Nexus Industrial REIT]

The remaining space also includes 80,000 sq ft in London, where the tenant is paying CAD 8 per sq ft rent, also well below market rent, and the lease comes due at the end of December. I would also like to highlight some leasing activity that will drive additional NOI in the new year. In Hamilton, I am pleased to share that we have executed and offered a lease for our 115,000 sq ft new build on Glover Road. We own 80% of the property, and it has been a challenging market in Hamilton. We expect to finalize a 10-year lease with the tenant for the entire building commencing in Q2 2027. This will resolve a longstanding vacancy, and I expect it to contribute significantly to our NOI. The tenant will be granted an incentive rate in the first year, quickly ramping up to market rent in the third year.

[Kelly Hanczyk, CEO at Nexus Industrial REIT]

Also, at our newly built small bay 115,000 sq ft building at 102 Avenue, Calgary, we have signed two additional five-year leases starting in February and April. We have now leased eight of the nine units of the 115,000 sq ft building, and we anticipate having the final unit leased very soon. Turning to our strategic initiatives, during the quarter, we built on our momentum from April by completing our third investment-grade bond issuance of the year. I will let Mike speak more about it in a minute, but suffice to say that the outcome was very positive for Nexus. We have also continued to make good headway on our capital recycling program.

[Kelly Hanczyk, CEO at Nexus Industrial REIT]

At the beginning of the quarter, we closed on the CAD 11.25 million sale of our 190,000 sq ft building in Red Deer, Alberta, marking the end of a challenging situation that our team managed extraordinarily well, demonstrating resourcefulness and ingenuity to continually add unitholder value. You may recall that 18 months ago, in March 2025, our tenant, Peavey Mart, surprised us by filing for CCAA protection. They were a tenant in two of our buildings, a western distribution warehouse at 40th Avenue in Red Deer, and an Ontario distribution warehouse in London. We quickly filled the London property in August 2025 with a top-tier tenant and a long-term, who has invested over CAD 22 million to update and fully modernize the building, and leased it for a 15-year term at rates over double Peavey's rate, with strong escalators.

[Kelly Hanczyk, CEO at Nexus Industrial REIT]

In contrast, we knew that it would take time to address the Red Deer property, which was large for the area. However, our team steadily pursued options and found an owner-user to buy the building. Took the buyer time to achieve a development permit to close their financing, so we arranged for them to lease it from us for a few months before they closed on the purchase in August. All told, I am very pleased with the outcome, and Nexus is left in a better position than where we started. During the quarter, we also contracted for two opportunistic sales. We contracted for the sale of our 105,000 sq ft building at 149 Street, Northwest Edmonton, for approximately CAD 12 million. This represents a cap rate of approximately 6.5% on in-place rents and is scheduled to close at the end of November.

[Kelly Hanczyk, CEO at Nexus Industrial REIT]

At our 29,000 sq ft empty cross-dock facility at 4700 102 Avenue in Calgary, we received a purchase offer well above our carrying value from the City of Calgary, and accordingly, we have decided to sell the building to them for CAD 12.5 million, equivalent to a cap rate of 5.2%. The transaction has gone firm and is scheduled to close in December. After quarter's end, we closed on an opportunistic sale at our property in Blackfalds, Alberta. Previously, the land had been leased along with a building on an adjoining property. In April, upon renewing the tenant, we severed off the unused land. In October, sold the land for proceeds of CAD 2.5 million. Turning to development, we have launched a sub-strategy with our portfolio to consider development of data infrastructure projects, where such investments meet our investment objectives and our disciplined approach to capital allocation.

[Kelly Hanczyk, CEO at Nexus Industrial REIT]

In addition to other properties, as a start, we believe that 1751 Savage Road, Richmond, and 555 Adams Road, Kelowna, have the existing electrical infrastructure, power capacity, and strategic locations that may provide a competitive advantage in pursuing possible digital infrastructure opportunities. During the quarter, we entered into a development profit-sharing agreement with the tenant that enables Nexus to earn income from the tenant's data operations. The agreement creates a conditional exclusive platform for the tenant to construct and develop data infrastructure projects across our portfolio. Data revenues generated from the portfolio will be first used to fund the operating costs, after which Nexus will earn a prescribed return, and then the residual net operating profits are shared equally between Nexus and the tenant after we sign the end users.

[Kelly Hanczyk, CEO at Nexus Industrial REIT]

At our Savage Road property in Richmond, B.C., we are developing an additional 10-acre micro-industrial units that may be used individually or combined as data infrastructure, referred to as micro vaults. These vaults are designed to accommodate data operations, micro-industrial activities, or storage. Vaults fitted for data operations are designed with dedicated power, backup power, cooling systems, providing customers with separately secured space for their equipment. Customers may occupy one or more vaults to meet their required power needs. We anticipate development costs of CAD 41.3 million and additional data infrastructure and fixturing costs of CAD 19 million, for a combined investment of CAD 60.3 million. The planned data operations are for an aggregate gross electric capacity of 9.9 MW across the site.

[Kelly Hanczyk, CEO at Nexus Industrial REIT]

The property currently has 2.1 MW of electrical capacity available for use right now, with conditional approval to increase the capacity to 6.6 MW, and then to a further 9.9 MW. Nexus Industrial REIT expects the project to generate significant returns and meaningful value creation for unitholders. If market conditions or other circumstances prevent operation of a data business at the property, the completed units will be instead used for micro-industrial or storage purposes, with an expected stabilized blended return comparable to the property's current return. During the quarter, foundations were poured and framing was initiated. Framing should be completed in a few weeks, and we incurred development expenditures of CAD 9.2 million on the project. At our Adams Road property in Kelowna, B.C., we are developing micro-industrial units, which may also be used individually or combined as data infrastructure.

[Kelly Hanczyk, CEO at Nexus Industrial REIT]

We do not anticipate any change in the development cost of CAD 47.3 million, and we expect the project to generate a minimum unlevered return on investment of 6%. The project has potential for much greater returns if the micro-industrial units are used as data infrastructure. The planning phase has been completed, and the construction permit application has been submitted for review. During the quarter, we incurred development expenditures of CAD 4.3 million on the project. Turning to our outlook, I continue to expect Nexus to deliver a strong 2026, driven by our completed development projects, embedded rent steps, the lease-up of vacant space, and the re-leasing of space at market rents above expiring rents.

[Kelly Hanczyk, CEO at Nexus Industrial REIT]

Due to the opportunistic sale of 4700 102 Avenue, Calgary, as well as slower lease-up of 4750 102 Avenue in Calgary and 1020 Adelaide, London, I now anticipate industrial same property NOI growth to be between 3%-4% for the full year. I continue to expect our normalized AFFO payout ratio to average well below 100% for the full year. With that overview, I'll now turn the call over to Mike for some more color on our financial results.

[Mike Rawle, CFO at Nexus Industrial REIT]

Thank you, Kelly, and good morning, everyone. As Kelly mentioned, during the quarter, we raised CAD 300 million of three-and-a-half-year bonds at a coupon of 4.563% and used the proceeds to repay existing drawings on our credit facility. This issuance resulted in several positive outcomes for Nexus. We are now left with our CAD 585 million credit facility virtually undrawn, which gives us plenty of rainy day liquidity and an ability to continue to absorb mortgage expiries on our credit facility, increasing our unencumbered asset pool. We now have well-laddered termed-out debt maturities with expiries evenly spaced in 2029, 2030, and 2031. This also will reduce our cost of debt while adding flexibility. Our latest debenture issuance priced at GoCs plus 105 basis points, which is significantly tighter than the CORRA plus 170 basis points that we pay on our unsecured credit facility.

[Mike Rawle, CFO at Nexus Industrial REIT]

I anticipate we will begin to realize these interest savings going forward. Finally, having now established a robust investment-grade debenture program, we have both lightened our covenant package as compared to the credit facility and increased our flexibility by diversifying our lender base and adding the ability for fast debt financing if needed. Turning to our financial results, starting with headline earnings in the quarter, net income was CAD 31.9 million, a CAD 28.4 million increase compared to a net income of CAD 3.4 million last year. The increase is due to higher fair value adjustments on Class B LP Units and on derivative financial instruments by CAD 23.4 million and CAD 7.2 million respectively, and a higher net operating income of CAD 2.5 million.

[Mike Rawle, CFO at Nexus Industrial REIT]

These increases are partially offset by a higher fair value adjustment loss on investment property by CAD 2.8 million and a higher loss on equity-accounted investments by CAD 1.3 million. As Kelly mentioned, our Q3 net operating income increased 7.8%, or CAD 2.5 million year-over-year to CAD 34.7 million. This was primarily due to a CAD 1.2 million increase in same property NOI, CAD 1 million from the completion of our St. Thomas and Calgary developments, and the acquisition of the two Montreal buildings in November 2025, which added CAD 700,000. This was partially offset by CAD 600,000 of straight-line rent adjustments and CAD 200,000 relating to dispositions completed since Q2 2025. Normalized AFFO for the period was CAD 0.166 per unit compared to CAD 0.146 from a year ago, primarily due to the higher net operating income that I just mentioned.

[Mike Rawle, CFO at Nexus Industrial REIT]

Total general and administrative expenses for the quarter were CAD 2.1 million, slightly lower than a year ago due to lower professional service fees. Net interest expense in the quarter was CAD 13.9 million, which was CAD 800,000 higher than a year ago, primarily due to lower capitalized interest in the quarter by half a million dollars, as well as a higher average debt balance. The carrying value of our investment properties decreased by CAD 800,000 in the quarter, primarily due to the CAD 12.5 million transfer of our building at 4700 102 Avenue, Calgary, into assets held for sale and fair value adjustments of CAD 7.1 million, partially offset by CAD 13.5 million of development expenditures and CAD 3.6 million of additional capital expenditures, tenant improvements, and leasing costs.

[Mike Rawle, CFO at Nexus Industrial REIT]

At September 30th, our NAV per unit was CAD 13.24, a CAD 0.01 per unit increase from last quarter. Our weighted average cap rate was 5.95%, which is consistent with last quarter. I will now turn the call back to Kelly.

[Kelly Hanczyk, CEO at Nexus Industrial REIT]

Thanks, Mike. In summary, as you can see, we are delivering on our strategy as Canada's industrial building partner by continuing to realize organic growth through embedded rent steps and positive mark-to-market on renewal. We have an A-class portfolio that is beginning to reap rewards, a sub-strategy that we expect to provide significant growth, and we will continue our track record of accretive capital recycling through opportunistic acquisition, dispositions, and development. With that, operator, please open up the line to any questions.

[Operator]

Thank you. To join the question queue, you may press star then one on your telephone keypad. You will hear a tone acknowledging your request. If you're using a speakerphone, please pick up your handset before pressing any keys. To withdraw your question, please press star then two. The first question comes from. Please go ahead.

[Kyle Stanley, Analyst at Desjardins]

Thanks. Morning, guys.

[Kelly Hanczyk, CEO at Nexus Industrial REIT]

Good morning.

[Kyle Stanley, Analyst at Desjardins]

Got a few here, so I'll probably ask a couple and jump back in the queue and see if they're asked later on. First, on the data center opportunity, can you walk through what your current leasing prospects might look like, and if you can provide maybe an expected timeline to a result?

[Kelly Hanczyk, CEO at Nexus Industrial REIT]

Okay. I would like to under-promise and over-deliver on this one. I don't know what that says, but I want to start by saying it's a very well-advanced sub-strategy, as we began this whole process over 22 months ago. We're well on our way. As I mentioned, we'll have completed framing within about a week, a week and a half. We're moving pretty quickly. We do have 2 MW available right now. We are in, like I said, for 6.6. I'm anticipating that to be able to be tapped in by, let's call it second quarter, and then up to 9.9, which will take a little bit longer. I don't know. It'll depend on BC Hydro. We have paid deposits, and are in the planning stage for that upgrade. For us, it's been, I would say, robust activity, with activity even picking up after the midterms.

[Kelly Hanczyk, CEO at Nexus Industrial REIT]

In the States, with the change in the House and the Senate, things have kind of come to a stop, and projects, I think, that were earmarked have been halted. There's a mad flurry because there is a substantial need for data with not much available. Anything that's being built is either taken or it is well out, three, four, five years out. What we're doing is, if you take an existing warehouse, it's all about entitlements. Entitlements is, you may have the power, but do you have the entitlements to use it as data? That's a whole other question.

[Kelly Hanczyk, CEO at Nexus Industrial REIT]

If you take an existing warehouse, you become a Tier II facility, which is not as good, and ours is purpose-built micro-industrial units, I'll call them micro data vaults, that is going to be a Tier III facility, which is much preferred by the AI, under lock and key, which is good for the sovereignty. On the leasing side, I'd say it's not a matter of if anymore, it's a matter of when. We are doing everything, I guess, to maximize our value in certain negotiations. The more demand, the better it gets. It's still a little bit early, but when I do have something, we will release it, because it'll be extremely positive to our results.

[Kyle Stanley, Analyst at Desjardins]

Okay, great. So, good progress, just not there quite yet. That checks out. Just switching over to the kind of the disclosure on the profit share, can you walk through some of the nuances of that? Is there a predetermined hurdle rate before the profit share is enacted? Then I guess just as we think about the incremental projects to the two that are currently underway, can you talk about how the agreement looks, specifically regarding the profit share there and how the development partner Studio Events Ltd. would participate in the development cost?

[Kelly Hanczyk, CEO at Nexus Industrial REIT]

Yeah. So, we're the developers, so we build, we will finance. We're focused on Richmond right now. Richmond is well underway. It is the one to focus on, and if we're successful in our lease negotiations, which I believe we will be, it's material to our NOI. So our focus is pretty much there for right now. That has a specific hurdle that would be, I guess, what you would call a good hurdle from a development project, like in general terms. So we'd get that return, and then on top of that, the profit after that, after expenses come out, is split 50/50, which is pretty substantial, if we get the terms that we're looking at. So, Richmond is our full focus. We have other ones earmarked, but it's also a very volatile market, right?

[Kelly Hanczyk, CEO at Nexus Industrial REIT]

I have them earmarked, but who knows what's going to happen with different governments and the way it works. Canada looks like it's in good shape right now in this side of things, so I'm focused on Richmond because if we execute on that properly, it is meaningful to our numbers. If at the end of the day that's all we get out of it's still substantial to us. So I'm hoping it is a sub-strategy right across our portfolio. The hurdle on future ones, on other locations, first, our return on our construction is higher, so it's substantially higher, and it becomes even more lucrative. So, like I said, we are focused on Richmond. We're going to execute on Richmond, and I'm extremely positive on it.

[Kyle Stanley, Analyst at Desjardins]

Okay. Sounds good. Just one last one. Just trying to understand again, I guess, how the development could unfold. In the event you were unable to secure a data center lease, obviously with your commentary, it doesn't seem like that's the case, but just in that event. Is there part of the total project budget that relates more to the data infrastructure that you would not incur? So meaning, if there's roughly 19 or 20 million of-

[Kelly Hanczyk, CEO at Nexus Industrial REIT]

Yeah

[Kyle Stanley, Analyst at Desjardins]

data infrastructure cost here, you wouldn't spend that if you didn't get a data center lease?

[Kelly Hanczyk, CEO at Nexus Industrial REIT]

Yeah, correct.

[Kyle Stanley, Analyst at Desjardins]

Okay.

[Kelly Hanczyk, CEO at Nexus Industrial REIT]

Correct.

[Kyle Stanley, Analyst at Desjardins]

Okay. Thank you.

[Kelly Hanczyk, CEO at Nexus Industrial REIT]

This is, call it micro data vaults, that would be Tier III, and we are delivering something really that is plug and play for them. So, a little different strategy.

[Kyle Stanley, Analyst at Desjardins]

Okay. Understood. I will turn it back. Thank you.

[Kelly Hanczyk, CEO at Nexus Industrial REIT]

Okay.

[Operator]

The next question comes from Sam Damiani with TD Cowen. Please go ahead.

[Sam Damiani, Analyst at TD Cowen]

Thanks. Thanks, and good morning. I am just going to continue on the same theme. I guess the focus is Richmond, and I am just wondering, how long will it take or could it take for that project to reach completion, reach some sort of stabilization to a point that you are ready to, I guess with confidence and visibility, commit capital to the second project?

[Kelly Hanczyk, CEO at Nexus Industrial REIT]

Yeah, I am pretty optimistic that we will have something to release in the upcoming weeks, hopefully. We are trying to maximize our value here. When we are looking at rates, we aim to do deals at wholesale rates for colocation facilities, which are very attractive. I think we will have something within a month. At the end of the day, we have two, so we can deliver two right now. That is the first hurdle. Then, depending on hydro, we are at the whim of hydro as well to be able to move to the 6.6 and then again to the 9.9. Like I said, I think 6.6, I am hopeful for second quarter of next year, we will probably be done with construction as a whole, and just need to power up. Then the 9.9 could take a little longer. We have also applied for more than that as well.

[Kelly Hanczyk, CEO at Nexus Industrial REIT]

So whether we get it or not, I don't know, but this is what we've got conditional approval on.

[Sam Damiani, Analyst at TD Cowen]

Okay. That's helpful. It's pretty capital intensive, Richmond, and I guess subsequent projects might have some similar capital intensity. What's the funding strategy for the strategy, to fully realize the potential?

[Mike Rawle, CFO at Nexus Industrial REIT]

Well, hey, Sam, it's Mike here. First off, I mean, funding strategy for us, we have plenty of headroom on our revolver, as we mentioned, so we have tons of liquidity. But ultimately, at this point, with the way the business, we expect the business will unfold, that we'll be able to fund most of this out of operating cash flow.

[Sam Damiani, Analyst at TD Cowen]

Okay. Okay. Maybe last one for me. I guess the relationship with Studio Events seems pretty integral to at least the Richmond and maybe other projects too. I've never heard of them. Is there something you can say to just help us understand who they are, what their background is, I guess?

[Kelly Hanczyk, CEO at Nexus Industrial REIT]

No, it was our development partner on the site, and when we were looking at the infill of building the 10-acre micro-industrial units, it started off as just a straight, we were going to build micro-industrial. Then, as we realized we have additional power and started looking at it, about 22 months ago, we had applied for, before the, I guess, all the rage, applied for additional power across a number of sites, and began to get conditional approval. They've been integral with working with the brokers, so we have two major data provider brokers that are working on the file. For us, it's just the build, and over these last 22 months, we've had a number of engineers that have come in and tweaked the design and tweaked the design over and over until now that design is finalized.

[Kelly Hanczyk, CEO at Nexus Industrial REIT]

It's a project that we're entering into together. We have significant interest in the project from a number of different groups, and that's kind of where we are in the timeline right now.

[Sam Damiani, Analyst at TD Cowen]

Okay. Before I wrap up here, the relationship with your partner on Richmond before this strategy was limited to just two assets in the portfolio, or were there other assets, are there other assets in the portfolio-

[Kelly Hanczyk, CEO at Nexus Industrial REIT]

Yeah

[Sam Damiani, Analyst at TD Cowen]

today that-

[Kelly Hanczyk, CEO at Nexus Industrial REIT]

Yeah, yeah. It was those two. Those two. Yep.

[Sam Damiani, Analyst at TD Cowen]

Thank you. I'll turn it back.

[Kelly Hanczyk, CEO at Nexus Industrial REIT]

Okay.

[Sam Damiani, Analyst at TD Cowen]

Thank you very much.

[Kelly Hanczyk, CEO at Nexus Industrial REIT]

No problem.

[Operator]

The next question comes from Jimmy Shan with RBC. Please go ahead.

[Jimmy Shan, Analyst at RBC]

Thanks. Just to follow up on the same theme. This may be a bit of a silly question, but is your lease contract that you have at Richmond, would that be with Studio Events, or, and then they in turn sublease out to these

[Kelly Hanczyk, CEO at Nexus Industrial REIT]

Exactly

[Jimmy Shan, Analyst at RBC]

micro data tenants? Is that how it works?

[Kelly Hanczyk, CEO at Nexus Industrial REIT]

That's how it works. The reason for that, it takes Nexus one step out of the process. So we have a head lease with them, and then they would take on the risk with the subtenant, who we would have on covenant. It just removes us one step in case there are power outages, like there are issues, whether it's penalties or whatever, that removes that liability from Nexus and moves it downstream.

[Jimmy Shan, Analyst at RBC]

Okay. Is that why you felt the need to give them exclusivity for the entire portfolio?

[Kelly Hanczyk, CEO at Nexus Industrial REIT]

Well, it's a strategy we developed together, and the design is patent pending. It's their design. It's been tweaked over a number of months to where it's actually, I personally think, with what's going on with data, it's a perfect infill strategy, and I think it's going to be very fruitful. The design is patent pending, and so overall, they've been the lead with the tenants and moving things along, and with the engineers and everything. For us, it's optionality. Across the portfolio, it's us who approves them as we go along. It's not, "Yeah, we're doing this, we're doing this." It's, "Here's our site. We have power approved, and then it's possible to do another site." Right now, we're really focused just on Richmond and executing on that one.

[Jimmy Shan, Analyst at RBC]

Okay. Is it possible for you to give us, maybe bracket the upside and downside? It sounds like the upside is quite material. Can you give us a range in terms of what the yield could look like?

[Kelly Hanczyk, CEO at Nexus Industrial REIT]

It's too early. I'm not willing to do it yet, but when we do have paper, we will release and explain in greater detail what it could mean to us. If we aim to do deals at wholesale rates for colocation facilities in a Tier III facility, it's pretty good.

[Jimmy Shan, Analyst at RBC]

Okay. Then last, if I look at the 2027 lease maturities, you do have about 336,000 sq ft expiring in Ontario. Any progress in renewing that, and what is your expectation in terms of rent that you will get there?

[Mike Rawle, CFO at Nexus Industrial REIT]

Yeah, a little early for us as we are going through our budgeting process now for us to give direct guidance for 2027, Jimmy, but we are very optimistic on the year. We love the momentum we have right now, and I expect it will continue through 2027. But we will give you a more fulsome update with guidance as we complete our budgets and are able to do so.

[Jimmy Shan, Analyst at RBC]

Okay. Thank you.

[Operator]

Once again, if you have a question, please press star then one. The next question comes from Saloni Seth with Raymond James. Please go ahead.

[Saloni Seth, Analyst at Raymond James]

Good morning. For the Glover Road property in Hamilton, could you throw some light on the tenant incentives being offered, including the magnitude and duration?

[Kelly Hanczyk, CEO at Nexus Industrial REIT]

Yeah, give me just two seconds. I'm just trying to look it up.

[Mike Rawle, CFO at Nexus Industrial REIT]

Just briefly, Glover Road.

[Kelly Hanczyk, CEO at Nexus Industrial REIT]

Yeah.

[Mike Rawle, CFO at Nexus Industrial REIT]

Just that, well, they're giving out CAD 10 and then sending out to market in three years.

[Kelly Hanczyk, CEO at Nexus Industrial REIT]

Yeah, I believe it's not incentives. It was part of the build cost of the facility. We just have to finish off the offices portion that we held back, because as an empty building, brand new build, each tenant requirement's different from offices, so we have to build that. I believe we've done a pretty significant deal for us where first year incentive rate is something like CAD 10 a foot, but ramps up to market in year three. I believe it has 3% annual growth. For us, it's a pretty good transaction. Takes the operating cost burn away from us and starts to provide income, I believe, in around second quarter next year. That's a pretty big swing on our AFFO.

[Saloni Seth, Analyst at Raymond James]

Okay, thank you. I'll turn it back.

[Kelly Hanczyk, CEO at Nexus Industrial REIT]

No problem.

[Operator]

The next question comes from Matt Kornack with National Bank Financial. Please go ahead.

[Matt Kornack, Analyst at National Bank Financial]

Hi, guys. Actually, going back to Glover, I apologize, I missed the opening comments, but can you give a sense as to how the discussions ultimately ended up getting to where they got to and what other alternatives you would have thought about for the property?

[Kelly Hanczyk, CEO at Nexus Industrial REIT]

Sure. So, funny enough, Glover was very interesting because we had very little activity for. We had it under contract once, and then the guy just walked away, and then very little leasing activity. And then we went and we made the decision to drop the rate and offer a year one incentive. So, in a matter of a week, we had three offers to purchase and two lease deals. And so, we looked at, on the offers to purchase, the ability of the purchaser to close, and we looked at our tenant here versus the other tenant. And this one, we were, I guess, 98% certain that we would end up in a long-term lease deal that was good for the property. So, great covenant tenant, 10-year term.

[Kelly Hanczyk, CEO at Nexus Industrial REIT]

And we can tuck it away and take, once it ramps up to market, tuck it away and take our 3% increases with a brand new Class A property in the portfolio. So, we looked kind of long and hard at who is the covenant, their ability to close, and who did we want, had the least conditions, and the least risk to starting to generate income for us.

[Matt Kornack, Analyst at National Bank Financial]

Okay. Makes sense. And now that you have a tenant, is the idea to keep the property, or does it also make it more attractive on a sale basis? Just interested.

[Kelly Hanczyk, CEO at Nexus Industrial REIT]

Yeah. I think we will end up purchasing the other 20% from our partner at some point. I just do not know when that is, but it would be probably some point next year.

[Matt Kornack, Analyst at National Bank Financial]

Okay. Makes sense.

[Kelly Hanczyk, CEO at Nexus Industrial REIT]

After the fact.

[Matt Kornack, Analyst at National Bank Financial]

Maybe fair enough. Maybe just a quick lay of the land in terms of geographic tenant demand and who is taking space and what you are seeing. I know the macro has been volatile, to say the least, on a number of different fronts, but maybe it is getting a little bit better going forward. But yeah, we saw a good leasing update from CBRE, but I think ultimately things got a little dicey after that. So, interested in a lay of the land on industrial at this point.

[Kelly Hanczyk, CEO at Nexus Industrial REIT]

Yeah. For us, obviously, Glover was a good sign. Two larger tenants looking for space in a market that has been pretty slow. Very positive. London to us has been pretty good. We have seen some activity there. Our partner down there had, at one point, a 500,000 sq ft manufacturing facility come back to them that they had to come in and, I call it, make it bright, light, and watertight, do all the things that you need to do. They have been successful in pretty much filling up that 500,000 sq ft. From an overall demand, I am seeing things pick up, especially Southwestern Ontario even, where nothing was going on. Now there are two to three kind of larger mandates out there in the 200,000 to 300,000 sq ft of people looking for space. Overall, it bodes well where we were not seeing that before.

[Kelly Hanczyk, CEO at Nexus Industrial REIT]

We take Hamilton, we have got that. We have got London, where I am seeing that demand. Montreal is still quieter. Out west, Edmonton, Calgary is still pretty solid overall. For us, I am feeling pretty positive for the first time in a while on the leasing front. I think things are starting to turn a corner. I think guys are getting more comfortable that there is going to be a trade agreement relatively soon, and I think that just bodes well, even more well for the industrial market as a whole. We have had a couple deals. I had a deal the other day where we did a We have not announced it, but it is not announceable, but our second-largest tenant, we just extended for another 10 years. We have them till 2040, and that is a pretty big cash cow for us, 2.5% increases a year on a higher cap rate portfolio.

[Kelly Hanczyk, CEO at Nexus Industrial REIT]

Overall, I am feeling more positive on the general business than in past quarters, because I feel it is getting there. I think if you look at our results, we are all focused on the data, which is a sub-strategy that has really, really moved the needle and the game changer for us overall. Our overall portfolio is kind of doing exactly what we said in that payout ratio is starting to drive down and as the new deals kick in. From overall performance, we are feeling pretty good. Then when we throw in the sub-strategy, we are feeling really good. We are sort of pretty positive on the future.

[Matt Kornack, Analyst at National Bank Financial]

Awesome. That is great. Glad to hear. Take care.

[Operator]

This concludes the question and answer session. I would like to turn the conference back over to Kelly Hanczyk for closing remarks. Please go ahead.

[Kelly Hanczyk, CEO at Nexus Industrial REIT]

All right. Thanks, everybody. Thanks for attending, and we'll see you next quarter.

[Operator]

This brings to a close today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.

Participants

Executives

• Kelly Hanczyk, CEO
• Mike Rawle, CFO

Analysts

• Kyle Stanley, Analyst at Desjardins
• Sam Damiani, Analyst at TD Cowen
• Jimmy Shan, Analyst at RBC
• Saloni Seth, Analyst at Raymond James
• Matt Kornack, Analyst at National Bank Financial