Nexus Industrial REIT TSE: NXR.UN reported higher revenue, net operating income and normalized funds from operations in the second quarter of 2026, supported by occupancy gains, completed developments and acquisitions. Management also highlighted an investment-grade credit rating, a C$500 million inaugural bond offering, asset sales and potential data-infrastructure uses for projects in British Columbia.
Chief Executive Officer Kelly Hanczyk described the quarter as “excellent,” saying the REIT delivered sequential and year-over-year growth in revenue, NOI, normalized FFO and trailing-12-month adjusted EBITDA.
Occupancy rises to 97%
Portfolio occupancy increased to 97% during the quarter, primarily reflecting activity at two Alberta properties. At 8th Street in Nisku, Nexus leased the full 40,000 square feet at a rent 15% above the expiring rate. At 40th Avenue in Red Deer, the REIT has agreed to sell a 190,000-square-foot property, with the buyer paying monthly rent that Hanczyk said represents a 10% yield on the purchase price until the transaction closes.
Management expects the Red Deer sale to close shortly after the buyer obtains a development permit. The property became vacant after Peavey Mart filed for creditor protection in April 2025.
Nexus also completed 380,000 square feet of lease renewals during the quarter at an average rent increase of 6% over expiring and in-place rents. As of June 30, the portfolio’s average spread between market and in-place rents was 14.9%.
About 600,000 square feet of leases are scheduled for renewal in the second half of 2026, with more than 400,000 square feet either renewed or expected to be renewed. The remaining expiries include a 90,000-square-foot strategic vacancy in Montreal, where the outgoing tenant pays C$9 per square foot, and 80,000 square feet in London, Ontario, leased at C$8 per square foot. Hanczyk said Nexus was in discussions with a prospective tenant for the London space.
During the question-and-answer session, management also referenced an additional 88,000-square-foot London property leased at C$6 per square foot that is expected to return to the REIT. Hanczyk said the company expects to improve on that rental rate.
NOI and FFO improve, while net loss widens
Second-quarter NOI rose 6.2%, or C$2 million, from a year earlier to C$34.1 million. Chief Financial Officer Mike Rawle said the increase was driven by C$1.3 million from completed developments in St. Thomas and Calgary, C$900,000 of same-property NOI growth and C$700,000 from two Montreal buildings acquired in November 2025.
Those gains were partly offset by a C$1.2 million decline in termination-fee income and C$200,000 related to dispositions completed since the second quarter of 2025.
Normalized FFO totaled C$17.9 million, while normalized adjusted funds from operations were C$0.154 per unit, compared with C$0.16 per unit a year earlier. Rawle attributed the per-unit decline primarily to a larger weighted average number of units outstanding and higher interest expense, partially offset by NOI growth.
The REIT reported a net loss of C$12.8 million, compared with a C$7.6 million net loss in the prior-year quarter. Rawle cited lower fair-value adjustments on derivatives and Class B LP units, along with C$2 million of higher net interest expense. These factors were partially offset by higher investment-property fair-value adjustments and NOI growth.
Net interest expense was C$14.7 million, up C$2 million from a year earlier, reflecting a higher debt balance and a non-cash write-off of deferred financing costs tied to the early retirement of a C$200 million term loan. The REIT’s NAV was C$13.23 per unit at June 30, down C$0.06 from the previous quarter, while its weighted average capitalization rate increased one basis point to 5.95%.
Bond financing and capital recycling
Early in the quarter, Nexus received an investment-grade credit rating and completed its first bond issuance, raising C$500 million in two tranches: C$300 million of three-year debentures carrying a 4.236% coupon and C$200 million of five-year debentures with a 4.641% coupon.
Hanczyk said bond-market access is expected to reduce financing costs over time, increase funding flexibility and lower financing risk.
The REIT also advanced its capital-recycling program. It sold its 80% interest in development land on South Service Road in Hamilton for C$14.1 million and used the proceeds to reduce debt. Nexus agreed to guarantee construction debt on the project on a secured basis for a 1% fee.
In Alberta, the REIT entered an agreement to sell nearly 14 acres of surplus land in Blackfalds for C$184,000 per acre, or approximately C$2.5 million in proceeds. The transaction is expected to close in October, with proceeds also earmarked for debt reduction.
Nexus is also marketing its 115,000-square-foot Glover Road new-build property in Hamilton after its 20% partner declined a right of first offer. Hanczyk said a sale could meaningfully benefit FFO per unit by eliminating carrying costs and allowing the REIT to repay debt.
British Columbia projects could support data infrastructure
Nexus has begun evaluating a data-infrastructure sub-strategy at properties with available electrical capacity. The company identified 1751 Savage Road in Richmond and 555 Adams Road in Kelowna as potential sites for micro-industrial units that could be leased individually or combined for digital-infrastructure users.
The Richmond project has an estimated development cost of C$41.3 million and is expected to generate at least a 6% unlevered return on investment under its existing plan. Permitting has been completed and construction has started. The Kelowna project has an estimated C$47.3 million development cost and a similar minimum 6% unlevered return target; its planning phase is complete and a construction permit application has been submitted.
Hanczyk said potential data-infrastructure use could produce substantially higher returns, though discussions remain early and the company has not announced leases. She said Nexus has available and approved additional power at the Richmond site and hopes to provide an update within roughly six weeks if leasing discussions progress.
Management said it has surveyed the broader portfolio and is pursuing power-related applications at a significant number of additional properties. It said internal development opportunities, including non-data projects with potential returns above 10%, currently take priority over acquisitions, while the company remains focused on deleveraging.
For 2026, Nexus reaffirmed its outlook for mid-single-digit industrial same-property NOI growth and expects its normalized AFFO payout ratio to average well below 100% for the full year. The year-to-date payout ratio stood at 99.3% following the second quarter.
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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