Nexus Industrial REIT

I would like to welcome everyone to the 2021 first quarter results conference call for Nexus REIT. Joining me today is Robert Chiasson, CFO 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 will be discussing non-GAAP measures. Please refer to our MD&A and the REIT's other securities filings, which can be found at sedar.com for cautions regarding forward-looking information and for information about non-GAAP measures.

Thanks, Kelly. I’d first like to just clarify, at March 31, we had 291,000 square feet of expired REITs over the next 12 months of which approximately 77% has already been renewed or is in discussions.

I think we may have said 77,000 square feet previously, but 77%, so we are well advanced in discussions and renewals on those properties. We successfully completed our $35 million equity offering on March 4, issuing 4,255,000 units, including the full exercised of the overallotment.

This put us in the position to be able to execute on the acquisition of a number of industrial properties. And as Kelly mentioned, we have been successful in putting properties under contract.

In the quarter, our weighted average number of units outstanding increased by 1,323,788 units on account of the offering and we paid $227,000 of distributions on the units issued in the March 4 offering. This had the impact of increasing our AFFO payout ratio from 84.2%, which would have been if not for the offering to 87.7% and impacted our per unit measures by approximately .

As we put our equity to work and closed on the recently announced and other acquisitions we are working on, we will see our payout ratio and per unit measures improve. On April 1, we closed on the $103.5 million acquisition of six industrial properties in London, Ontario.

We issued approximately 65% of the purchase price in units and have the ability to increase our debt on these properties to acquire additional industrial assets. We expect that we will not see the full benefits of rebalancing our capital structure following the London deal and deploying proceeds from the equity raise until the third and fourth quarters of this year.

Thanks, Rob. I'll open up the line to answer any questions that you guys may have.

Thank you, and good afternoon. It looks like there's a fair amount of new supply of industrial space coming across the country.

I was wondering what’s your views are on the new supply and what do you see on the ground in your current and target markets?

Yes. The things that we have right now, there isn't a lot of guys coming up for renewal.

So we're in good shape on the industrial side for sure. And then a lot of the recent deals we've done are longer term leases.

The two new builds are 10 and 15 years, so it really wouldn't even affect us, but the demand for industrial right now is huge. So I think when we're talking about new supply, you're looking at a lot in GTA and things like that.

If you look down in London where we've just purchased, there is very little new supply right now coming on. So that bodes very well for renewables going forward, especially in that market.

So it is one – it's very, very tight and I think it's one that we're going to excel in. So overall, I think our portfolio really isn't affected too much on – with that.

You're talking about big box, new warehousing being built and it's probably – the majority of it is in GTA. You've got stuff in Calgary, all back in areas like that are going to continue to expand, but I just see it as a positive.

The take-up on it is large. There is big demand for industrial space right now.

Is it fair to say that you have a positive views on pretty much all your current markets? Or there might be some of them that you have more on the radar in terms of supply?

Yes. Well, London is a big one now, right?

And so there's no concerns there. We're in Cambridge, the tenants has been there forever.

They're not going to leave very same thing. I look at Calgary and that area, and we have some, I guess, longer-term tenants’ builds in there.

So it doesn't really affect us. Our Montreal portfolio as we see – things roll, we've seen positive on the rental rates there in Montreal.

Montreal, there is huge demand as well. So I think our portfolio is just situated a little differently, I would say overall, so I just see positive right now.

Okay. That's great.

That's fair. And it looks like you'll be on that 75% exposure to industrial fairly shortly.

If we keep Richmond, I mean, how should we view the rest of the portfolio? What should we be expecting in the short-term?

What do you mean by that?

Like, what's your ultimate goal? Would you like to be more in the 90% to 100% exposed to industrial?

Or – yes, so…

Yes. We're continuing to – everything we look at, everything we have under contract, everything that we're looking at is in the industrial sector.

So we'll start to look at divesting some of our other assets, especially need perhaps some of the wholly-owned assets that we have in Montreal office in retail. So that alone will move that weighting significantly up as well.

So as we continue to add industrial product, you'll see that waiting continue to grow. Ultimately, I don't want to take us.

But if things are going in the first half of the year – the second half of the year, like they're going in the first half of the year on the pipeline, it's very active. So that number can move significantly, especially if we move a couple assets on the retail side or on the office.

Great. That makes total sense.

So I guess in that sense, I mean, is it fair to say that the rest of the portfolio should be somewhat considered non-core or is still a bit too early to call that a non-core at this stage?

Yes. I'd say it's a bit too early, but we are moving towards an ultimate goal of the industrial leading being the majority of our portfolio.

So whether that is 90% or 95% down the line, that is going to take us a little bit to get there, but that is our ultimate goal.

Yes. Got it.

That makes total sense. Last one for me, would you contemplate any development projects on the industrial side?

Or again, it would be a bit too early to…

That makes total sense. Thank you very much.

That’s it for me.

Thanks, Fred.

Yes. I want to thank everyone for taking the time to be on the call and hopefully over the next several weeks, we'll just continue to announce some additional deals and continue to build the industrial portfolio going forward.

So I look forward to talking to everybody on next quarter.