Nexus Industrial REIT TSE: NXR.UN reported higher first-quarter operating income and said it remains on track to keep its normalized AFFO payout ratio below 100% for the full year, while also highlighting an investment-grade credit rating and its first bond issuance as key milestones.
On the REIT’s first-quarter conference call, Chief Executive Officer Kelly Hanczyk said net operating income rose to CAD 33.8 million, up CAD 1.7 million, or 5.4%, from a year earlier. Normalized funds from operations increased to CAD 17.7 million, and adjusted EBITDA for the last 12 months rose to CAD 121.3 million.
Hanczyk said the quarter marked the first time in 10 quarters that Nexus posted a payout ratio below 100%, with a normalized AFFO payout ratio of 96.6%. Normalized AFFO per unit was CAD 0.162. Net asset value increased CAD 0.07 from year-end to CAD 13.29 per unit.
Leasing Activity Offsets Temporary Vacancies
Hanczyk said Nexus completed about 41,000 square feet of new leases during the quarter at an average rent lift of 32% over expiring and in-place rents. He said the REIT’s average spread between market and in-place rents was 15.8% as of March 31.
Occupancy declined to 95% during the quarter, which management attributed to two unplanned vacancies. Hanczyk said one vacancy came from a 62,000-square-foot property at 4590 Portland Boulevard in Sherbrooke, Quebec, where Nexus terminated a tenant early for non-payment. The termination resulted in about CAD 1.2 million of additional income, which the REIT expects to collect through a guarantee from the tenant’s parent company.
“While this quarter our NOI and AFFO benefited from the lease termination, the 62,000 sq ft property is now vacant and will likely take several months to find a new tenant,” Hanczyk said. He added that, on a full-year basis, he does not expect a material impact because the termination income should offset downtime in coming quarters.
The second vacancy was at 1020 Adelaide Street in London, Ontario, where an 88,000-square-foot tenant vacated at the end of February. Hanczyk said the tenant had been paying gross rent of CAD 6.80 per square foot, which he described as significantly below market. Nexus expects to re-lease the space over the next several quarters at market rents of about CAD 9 to CAD 10 per square foot net.
The REIT delivered industrial same-property NOI growth of 1% in the quarter. Hanczyk said the figure reflected positive leasing activity that outweighed the impact of temporary vacancies.
2026 Outlook Reaffirmed
Management reiterated its outlook for mid-single-digit same-property NOI growth in the industrial portfolio for 2026 and said it expects the normalized AFFO payout ratio to average below 100% for the full year.
Hanczyk said Nexus had 998,000 square feet of gross leasable area scheduled to expire in 2026. To date, the REIT has renewed 510,000 square feet at an average increase of 7% over expiring rental rates. Excluding one reset renewal in Alberta, the rental lift was 26%.
Of the remaining 380,000 square feet of expiries for the year, Nexus is in discussions with two tenants representing 240,000 square feet expiring in the fourth quarter. The remaining 140,000 square feet is mostly tied to three strategic vacancies where the REIT expects to pursue higher rents upon re-leasing.
During the question-and-answer session, analysts asked about the expected acceleration in same-property NOI growth after a softer first-quarter print. Hanczyk said drivers include the leasing of vacant space, including a former Peavey Mart space in Calgary, and rent expected from another former Peavey Mart location that is under contract for sale.
Asked about leasing conditions, Hanczyk said Alberta and Western Canada remain strong, while Montreal has slowed from previous levels. He said London and Southwestern Ontario remain “interesting” markets, with some caution from tenants amid uncertainty.
“The growth plans have paused,” Hanczyk said, adding that uncertainty around tariffs has led some tenants to take more time on decisions.
Investment-Grade Rating and Bond Offering
Nexus received an investment-grade rating of BBB low with a stable trend from DBRS during the quarter. In April, the REIT completed an inaugural CAD 500 million bond issuance, consisting of CAD 300 million of three-year debentures with a 4.236% coupon and CAD 200 million of five-year debentures with a 4.641% coupon.
Hanczyk called the bond issuance a major milestone for the REIT, noting that the company began 13 years ago as a capital pool company with CAD 5 million in cash and now has nearly CAD 2.7 billion of assets.
Chief Financial Officer Mike Rawle said the bonds should provide interest savings of roughly 10 to 20 basis points compared with the REIT’s credit facility, depending on credit spreads. He also said the unwind of certain currency swaps had no income statement impact because the derivatives were already carried at fair value, though there was a cash impact of just under CAD 2 million.
Asset Sales and Development Pipeline
Nexus said it has addressed two of the four buildings identified as held for sale at year-end. In February, the REIT sold 41 Royal Vista Drive in Calgary for CAD 8.5 million, equal to a 5.7% capitalization rate. Hanczyk said the offer came unsolicited from an existing tenant seeking long-term control of the site, and the proceeds were used to repay debt.
The REIT’s 40th Avenue property in Red Deer, Alberta, is under a firm sale contract for CAD 11.25 million. The 190,000-square-foot property became vacant when Peavey Mart filed for CCAA in April 2025. Hanczyk said the buyer is obtaining a development permit, and in the meantime will pay monthly rent of CAD 95,000 beginning in May.
Nexus is still seeking a buyer or tenant for its 115,000-square-foot new-build property on Glover Road in Hamilton, where it owns an 80% interest. Hanczyk said the Hamilton market has been challenging, but a sale would contribute meaningfully to AFFO per unit because carrying costs are significant. In response to an analyst question, he estimated the property’s carrying costs at approximately CAD 80,000 to CAD 90,000 per month.
The REIT is also “marketing gently” its remaining retail property, Les Halles d’Anjou, which Hanczyk said continues to generate cash flow. Nexus is also close to selling its 80% interest in development land on South Service Road in Hamilton and plans to use proceeds to reduce debt.
On development, Nexus is planning two projects expected to begin later this year. At Savage Road in Richmond, British Columbia, the REIT plans to add 80,000 square feet. At Adams Road in Kelowna, it plans up to 180,000 square feet of micro-industrial units at an estimated cost of about CAD 47 million. Hanczyk said the Kelowna project remains in the design phase and may start near year-end.
Financial Details
Rawle said first-quarter net income was CAD 32.2 million, down from CAD 33.2 million a year earlier. The decline was mainly due to lower fair value adjustments on investment properties and Class B LP units, partially offset by higher fair value adjustments on derivative financial instruments and increased NOI.
Rawle said the increase in NOI was driven by the completion of the St. Thomas and Calgary developments, which added CAD 1.3 million combined, the acquisition of two Montreal buildings in November, which added CAD 700,000, and the Sherbrooke lease termination income.
Net interest expense was CAD 14.1 million, up CAD 700,000 from the prior year, reflecting higher credit facility interest tied to borrowings for mortgage maturities and development expenditures, along with lower capitalized interest following the completion of development properties. These items were partly offset by lower mortgage interest from repayments and property dispositions.
The carrying value of investment properties rose CAD 14.3 million in the quarter, driven by capital expenditures, tenant improvements and leasing costs, development expenditures and fair value gains. The REIT’s weighted average capitalization rate rose to 5.94% from 5.88% at year-end.
About Nexus Industrial REIT TSE: NXR.UN
Nexus Industrial REIT is a growth-oriented real estate investment trust focused on increasing unitholder value through the acquisition, ownership, and management of industrial, office and retail properties.
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