Release Date: August 15, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- FFO improved by 9.2% to $0.178 per unit and AFFO improved by 10.4% to $0.148 per unit.
- Net operating income (NOI) increased by 14% year-over-year to $31.6 million.
- Successful acquisition of new properties contributing positively to NOI.
- Resolution of key vacancies, leading to improved occupancy rates.
- Significant progress in development projects, with new tenants and increased NOI contributions.
Negative Points
- Net income decreased by $33.7 million compared to the previous year.
- Higher interest expenses due to increased debt from acquisitions and development expenditures.
- General and administrative expenses increased by $200,000 year-over-year.
- Challenges in selling non-core assets, including retail and office properties.
- Potential short-term increase in leverage due to ongoing development projects.
Q & A Highlights
Highlights of Nexus Industrial REIT (EFRTF, Financial) Q2 2024 Earnings Call
Q: Kelly, you gave some really good detail just in terms of the NOI contributors. Was the $900,000 at Richmond the incremental quarter-over-quarter?
A: That's the incremental addition to NOI this quarter. The annual run rate right now is $4.5 million, so it's about $1.1 million a quarter.
Q: On the dispositions, can you provide details on the $110 million expected to close by the end of the quarter?
A: The average in-place cap rate is around 7.1%. The major ones include the old Montreal portfolio, a Saskatchewan portfolio, and a retail portfolio. The old Montreal portfolio is expected to close in stages by September and October.
Q: Can you talk about the rationale for expanding into Sherbrooke and the acquisition environment?
A: The Sherbrooke deal was opportunistic, involving a tenant within our portfolio. It's a brand-new build with a 10-year deal at a 6% cap rate and 3% annual increases. We are currently not pursuing acquisitions aggressively but remain open to appropriate unit deals.
Q: How are you thinking about keeping leverage below the 50% threshold?
A: We aim to keep leverage below 50%, though development activities may cause minor fluctuations. If we do exceed it, it will be temporary and with a clear path to reducing it through dispositions.
Q: On the asset dispositions, how does the value compare to the IFRS value you carried?
A: We took a write-down of about $10 million on our retail portfolio to align our carrying value with the PSA. For the Saskatchewan properties, no additional write-downs were needed.
Q: Can you provide more details on the development side, specifically the Global Road project?
A: The Global Road project is the only one left to be leased up. We have other development parcels in Hamilton and Stoney Creek, but we may not proceed with them due to skinny development returns. We are also exploring opportunities within our existing portfolio.
Q: What are the next stages in Nexus' growth and strategy over the next 2 to 4 years?
A: We aim to become a pure-play industrial REIT, focusing on high-grading our portfolio, reducing our payout ratio, and lowering our debt. Future growth will depend on market conditions and opportunities for unit deals.
Q: Can you give a sense of tenant retention ratios and rent spreads for 2025?
A: For 2024, we've renewed about 75% of our expiries at an average growth of 24%. For 2025, we've addressed about 50% of expiries with a 10% growth. We expect significant rent lifts, especially for a 250,000 square foot space currently 200% below market.
Q: How does the availability in the London market impact your portfolio?
A: The London market remains tight with strong drivers like the Volkswagen plant in St. Thomas. We haven't seen a decline in asking rents for well-located, good-quality products.
Q: What is the refinancing plan for the RTL Westcan portfolio?
A: We are rolling the credit facility at a slightly lower rate and will likely fix the rate with a swap, doing a 1-year deal.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
