Nexus Industrial REIT

I'd like to welcome everyone to the 2025 Fourth 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 the 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 sedar.com for cautions regarding forward-looking information and for information about non-GAAP measures.

I'm delighted to share that we are entering 2026 with good momentum and well-positioned growth. And despite challenging economic backdrop, 2025 was a very successful year for us.

For the full year 2025, we delivered record net operating income of $129 million, and an increase of 2.8% compared to last year. We generated record adjusted EBITDA of $120 million and also grew our per unit metrics compared to last year.

FFO per unit increased to $0.61 and our NAV grew to $13.22 per unit. Impressively, we grew despite selling our retail portfolio at the beginning of the year, completing our transition to a pure-play industrial REIT.

This sale raised $47 million and focused our business so that today, 99% of our net operating income comes from industrial assets. As a result, we fulfilled our vision to be Canada-focused pure-play industrial REIT, and have now moved forward, adopting our new purpose to be Canada's industrial building partner with a vision to be the first choice provider of high-quality industrial properties in Canada.

During the year, we strengthened our industrial portfolio by completing 2 transformative developments and 2 opportunistic acquisitions. At 70 Dennis Road in St.

Thomas, we added 325,000 square feet for an existing tenant. We completed the project in September and are now earning a 9% contractual yield on the $55 million of development costs.

At 4750 102 Ave in Calgary, we completed construction in August of 115,000 square feet of small bay industrial units on vacant land that we had adjacent to another building. We have leased 5 of the 9 units and have an additional lease for 1 more unit under negotiation, and offers on 2 additional units.

After a good start, the leasing progress slowed as a prospective large tenant unexpectedly retired. Nevertheless, interest remains high for the property, and I expect that we will have it fully leased by late summer.

Overall, the construction cost us $15 million and will deliver a healthy 11% cash and cash return when stabilized. Turning to the acquisitions.

At the end of November, we had a rare opportunity to acquire 2 high-quality industrial buildings well located in Montreal at a very attractive price. The opportunity arose due to our strong network and our reputation as a reliable partner.

A private equity firm that we've worked with in the past was acquiring an operating business, and they didn't want the business real estate. They didn't want to have to pay for the real estate.

So we worked with them to acquire the 2 buildings and entered into a sale leaseback agreement under a long-term lease agreement. We acquired the buildings for $40 million at a going-in cap rate of 6.6%.

However, the lease rate resets to market in 2028, which at current rates works out to a stabilized cap rate of approximately 10.4%. The buildings added 283,000 square feet of high-quality real estate to our portfolio, at a purchase price of approximately $145 per square foot.

where similar real estate typically trades in the range of $215 to $235 per square foot. We had the building appraised at year-end and realized a significant mark-to-market lift of approximately $23 million.

We also sold several properties during the year. In October, after a complex land zoning and severance process, we sold surplus land at our last remaining retail property for $8.5 million and used the proceeds to delever.

The sale appeared well timed as the land was zoned for condominium development, a segment of the market which has shown signs of slowing since the sale was completed. Now that we have completed the land sale, we are soft marketing our 50% share of the retail mall for sale.

It's a well-located, high-quality property that cash flows well for us. So we don't feel rushed to -- force to make a sale.

During the year, we opportunistically sold 3 industrial buildings. In April, we sold a vacant property in Fort St.

John above our carrying value of -- $7 million and used the proceeds to offset the acquisition of land surrounding our building in Kelowna, BC, where we saw a development opportunity. In June, we sold another small building in Edmonton that we viewed as non-core, that had been vacant for nearly a year, to an owner user for $4.2 million, which was in line with our carrying value.

We used the proceeds to reduce debt. In September, we sold a third industrial building in Saint-Laurent, Quebec, to an owner user for $9.2 million.

This exceeded our carrying value and equaled a 5.5% cap rate. After year-end, we closed on the sale of a fourth small industrial building.

On February 20, we sold a 35,000 square foot building in Calgary at a 5.7% cap rate to the existing tenant for $8.5 million. We have used the proceeds to pay down debt.

We are currently working on 3 more asset sales. As I mentioned earlier, we are currently soft marketing our 50% share of our last retail property, Les Halles d'Anjou Du.

In Hamilton, we're looking for a buyer, or a tenant for our 115,000 square foot new build on Glover Road. We had a buyer lined up for the property, had it under contract at an attractive price.

However, the deal fell through at the last minute. We own 80% of the property and it has been a challenging market in Hamilton, but we have a brand-new state-of-the-art 40-foot clear LEED certified product.

Once sold, it will contribute significantly to our AFFO per unit as we will immediately reduce the carrying costs and be able to use that equity to pay down debt. In Red Deer, Alberta, we have a firm sale contract for our 190,000 square foot building at 40th Avenue.

This building went vacant when Peavey Mart filed for CCAA in April 2025. We have been marketing the building for lease and for sale, and we now have it under firm contract to close in April for a little over $11 million.

We will also look to sell our 80% interest in development land on South Service Road in Hamilton in the near future and be able to utilize the proceeds to further reduce our debt. Turning to our operating performance.

We had a strong fourth quarter. In total, we completed nearly 117,000 square feet of renewals at an average rent lift of 2%.

Year-to-date, we have completed a total of 1.2 million square feet of leasing and realized an average leasing spread of 60% over expiring and in-place rents. In the fourth quarter, our industrial occupancy held steady at 96%.

Combined with embedded rent escalation in our leases, our leasing activities drove industrial same-property NOI growth of 2.8% in the quarter and 2.6% for the full year, in line with our guidance. Our financial results also improved in the quarter.

Normalized FFO grew 3.3% versus Q3 to $0.186 per unit, and our normalized AFFO rose 3.4% to $0.151 per unit. In both cases, the increase was due to strong net operating income, which was up 2.5%, or $800,000 compared to last quarter, and up 2.7% compared to the prior year.

This NOI increase largely resulted from the completion of our development project in St. Thomas, the 2 Montreal building acquisitions as well as same-property NOI growth, partially offset by foregone rent from properties we sold since Q4 of last year.

At our cross-dock facility at 102 Avenue in Southeast Calgary, the new tenant that we had lined up for December 1 reneged on the deal after fully negotiating a lease agreement. Accordingly, we are marketing a 29,000 square foot building for lease and anticipate renting it quickly.

We had a lot of interest in the building and had recent follow-up showing, so we're pretty optimistic. Overall, while we saw strong growth in 2025, and we expect to realize an even bigger benefit in 2026 from our completed development projects, embedded rent steps and lease-up of a vacant space, and the re-leasing of space at market rents above expiring rents.

We are anticipating mid-single-digit same-property NOI growth in our industrial portfolio for the year, and we expect our normalized AFFO payout ratio to average below 100%. We have made good progress on our 2026 renewals.

In total, we had about 990,000 square feet coming for renewal in 2026. Roughly 415,000 square feet comes due in the first 9 months and the remaining 575,000 square feet in the fourth quarter -- late in the fourth quarter.

As of today, we have committed tenants for approximately 65% of the January through September expiries, and we're making good headway on our Q4 renewals. For Q4, 405,000 square feet comprised of 3 large tenants, and we fully expect them all to renew, and 140,000 square feet are strategic vacancies -- another 140,000 square feet, are sort of, strategic vacancies where we believe we can increase the rent on renewal.

We also recently announced 2 additional development projects, which will get underway in the first half of 2026. We're going to build up to 180,000 square feet of micro industrial units on a vacant land surrounding our industrial building at Adams Road in Kelowna for a total estimated cost of approximately $47 million.

And our Savage Road property in Richmond, BC will be adding another 28,000 square feet, time to the 52,000 square feet that we announced in November for a total of 80,000 square feet, additional 28,000 square feet expected to cost about $19 million. As I shared previously, the original 52,000 square foot expansion is being paid in REIT units at $10.50 per unit.

We'll earn about 6% on the REIT units issued during the construction period, and we will earn a contractual 6% yield upon completion. I expect construction will begin in the first half of 2026.

In summary, we continue to advance our strategy in 2025 as Canada's industrial building partner. We will continue to realize organic growth through embedded rent steps and positive mark-to-market on renewal.

And we will continue our track record of accretive capital recycling through opportunistic acquisition and development. I'll now pass the call over to Mike, who will give some more color on our financials.

Thank you, Kelly, and good morning, everyone. Starting with headline earnings in the quarter, net income was $30.6 million, a $19.1 million decrease to last year.

The fluctuation was due to a decrease in the fair value adjustment on Class B units by $31 million, and fair value losses on our Montreal office building joint venture of $4.2 million, partially offset by an increase in fair value adjustments of investment properties of $10.6 million, and an increase in fair value adjustments on derivatives of $3.9 million. As Kelly mentioned, our Q4 net operating income increased 2.7%, or $800,000 year-over-year to $33 million.

This was primarily due to the completion of our St. Thomas development and the Montreal building acquisitions, which combined added $1.5 million in the quarter, and an increase in same-property NOI of $700,000, and higher straight-line rent adjustments of $500,000.

These increases were partially offset by $1.4 million of NOI associated with properties that we have sold over the past year. Normalized AFFO for the period was $0.151 per unit, compared to $0.153 a year ago, primarily due to the issuance of $2.8 million Class B units for prepayment of the development in Richmond, BC.

This was partially offset by higher normalized AFFO by $300,000, resulting from higher net operating income. Total general and administrative expenses for the quarter were $2 million, which was $200,000 higher than a year ago, primarily due to higher compensation, legal and professional fees.

Net interest expense in the quarter was $14 million, which was consistent with last year. The carrying value of our investment properties increased by $31.3 million in the quarter, primarily due to the $40.1 million acquisition of the 2 industrial properties in Montreal, $18.7 million of fair value gains, and $3.7 million of development expenditures, partially offset by $34.8 million of investment properties that were reclassified to assets held for sale.

At December 31, our NAV per unit was $13.22, a $0.03 per unit increase from last quarter. Our weighted average cap rate increased by 3 basis points to 5.88% in the quarter compared to 5.85% at September 30.

I'll now turn the call back to Kelly.

Thanks, Mike. With that, operator, I'll open up the line to any questions.

Kelly, you gave some pretty good color on the 2026 lease maturities. So I apologize if I've missed some of the detail.

But did you mention an average spread expectation for the 2026 program?

We didn't. We didn't.

I think at the end of the day, when I'm looking at them in the last half of the year, when I look at the -- there's 3 large ones that make up, and I'd say they're on an average of about 850 net where I think we'll be somewhere around 10, 11 on those. And then one of them, 90,000 square footer in Montreal is an intentional one.

And that one, we worked out a deal with those guys because they had a very low rental rate and they had 3-, 5-year option to renew at very little to no increase. So we worked out a deal.

We gave them a 1-year renewal last year at a higher rent, still below market, but at a higher rent to get it back, and to lose those renewals and be able to lease it at a decent rate. So that makes up -- I mean that makes up about 500,000 square feet, I believe.

So I think on all of those, we're probably at $1.50, maybe $2 increase per square foot.

Sorry. And so that's for the 500 or for the full 900?

Because I think you've got [indiscernible] of the Jan to September done, right?

Yes. There's -- I don't know if -- I don't have the average spread of what we've completed.

Okay. No problem there.

But I think, Mike, also another way of thinking about it is the SPNOI guidance we've given of mid-single digits will help anchor you.

No, that's fair. That's fair.

Just on the -- there's different methodologies around the space, and I haven't looked in your MDA to confirm exactly, but I'll just ask a question. For your SPNOI, does that include the contribution from intensifications?

Or is it a pure number?

Includes that.

It includes that. So Dennis Road and 102 Avenue Southeast would be in there?

Sorry, I'm being corrected. It's excluded.

Excluded. Okay.

Good to know. All right.

And then just, I guess, last question for me before I turn it back. Just on the future developments.

It looks like Adams Road is -- you're going to commence construction, it sounds like. Or is that one already under construction?

Yes, it's not under construction yet. We're in the permitting phase.

Okay. Got you.

And then Savage Road. So -- and you gave the detail on the yield for Savage Road, I guess, 8% converting to 6% on completion.

And then -- so for Adams, I guess, what's the anticipated yield on that? And just with both projects, where do you expect the completions to line up?

I think they would probably be complete some point next year and it depends on how fast we can get going. Adams, it's a little different because we are looking at building micro industrial.

And right now, I'm working on the difference between either pre-leasing them or preselling -- or selling them as we go and funding the next batch. So it's a little up in the air as we haven't really fully started the project yet.

We're in the planning phase and it could be a mixture where we lease some and we sell some because from a sale on a per square foot basis, we expect to get -- because we are micro industrial and these are small units. So it's a good user -- owner user opportunity where I think we can hit better returns.

So I'd say it's probably going to be, let's call it, a 7% overall, between 7% and 10%.

Maybe just on the debt to EBITDA, it remains elevated near 11x. I was just wondering if you have a year-end target for 2026?

We haven't given guidance to that, but we do see a pretty rapid delevering this year. And so our goal is -- maybe a way of thinking about it is our goal is to hit investment-grade balance sheet this year.

And the guidance we've been giving from DBRS is that they're looking for mid-9s to achieve that. So that's our target is to get to that IG rating.

So is that something you're shooting for by the end of the year, sort of mid-9s?

Yes, I think that's fair to say. Mid-9s would be our target, and that would get us to the IG rating.

Great. And just on the Belvedere Club, I'm just wondering if you could maybe expand on -- or go into some detail on what the expansion phase, what the scope of work for that latest expansion phase you've announced?

Yes. So it's same like Adams, it's micro industrial units on land that's available for us to build.

So it's not part of the Rapid Club?

No. No, separate.

We're trying to -- we've redone the drawings to create a series of micro industrial units.

Got it. And I guess last one for me.

On the fair value gains, is a nice one on the Montreal acquisitions there. Just wondering, did you revisit the Voila CFC in Montreal in light of Empire's announcement earlier this year?

Yes. Actually, I was there last week in Vida tour, and it's my understanding, the Montreal facility has the largest share of -- market share of home delivery in Quebec.

So I think just a very different circumstance. The brand is pretty large in Quebec.

So from everything I see, it was full steam ahead. They were pretty busy.

Yes. Another -- just a little more color on that is there's a long lease on that building, too.

So this isn't one that we're concerned about?

Maybe switching gears a bit. Obviously, you did the 2 acquisitions in Montreal.

How do you think about acquisitions this year? Obviously, the focus is to delever and to get that investment grade.

How do you think about opportunistically on the growth side?

Yes. So I think reality is if we are looking -- we are looking, I am in the process of working through a bunch of different things, but they would be more geared towards unit deals.

So we wouldn't be purchasing anything from cash. It would be a unit transaction.

So if you see us do anything this year, it would 99% likely be a unit deal transaction.

And how does that pipeline look today in terms of potential deals you're working on?

Yes. I mean I'm working on one.

It's early phase, but it would be -- it's a 3 building that would fit nicely into the portfolio and see if I can get it done. It's tough when the units are trading down at this level, but we'll see what we can do.

So just going back to that $40 million Montreal deal, you gave pretty good color on sort of the deal dynamic. Perhaps just trying to get my head around, how is it that you're able to still get a very low basis for it and kind of why would the PE firm be willing to accept?

I guess, ultimately, this will be like a 10% cost for them, right? And so kind of what's -- what are the other nuances that are part of the deal that you're able to get such a good deal?

I don't think there's any other nuance in that. So we've done a deal with them before.

We actually purchased our Windsor -- part of our Windsor portfolio through them, I think is A.P. Plasman.

I think that was a 4-building transaction. And we closed and it was a smooth transaction, easy to complete.

And I think at the end of the day, they're just not focused on the real estate, and we managed to negotiate a pretty sweet deal at $145 a foot. So we pounced on it.

But there's no other nuances to the deal, really.

Okay. That's good.

And then just on the swaps. I think you've got a total of about $350 million of notional amount where it's -- is it callable by the counterparty?

And I'm just wondering, like, I guess, rates have gone up since then. Like are these likely to be called?

The ones that have...

Not at this point. No, they're out of the money for them, so.

Yes. Okay.

Okay. And maybe lastly, just on Glover, I guess what's the plan now?

Is it still to try to market that property? And are you trying to for a tenant?

Absolutely. I mean our preference is to market it for sale.

So we haven't listed right now and always do is wait to get an offer. We had it under contract.

It seemed to be going fine. And then at the last minute, the purchaser just dropped out, and it was an owner-occupier, which is even more strange.

But yes, we're anxious to move that one because that frees up, quite frankly, a lot of capital and reduces the burn on our AFFO. So it has a meaningful effect once we're able to unload it.

Are you hopeful you'll be able to get something done this year, on it?

Yes. I'm hopeful for this year, I'm hopeful -- I mean, it's March, maybe we could close something, I would think, in -- I would say, early fall.

That's what I'm hoping for. If we're lucky, maybe sooner.

Just on the renewal rents in Q4, they were a little bit lower than where they've been for the rest of the year. Anything special about that or anything just -- sorry, was that just sort of like a one-off kind of lease situation that created that?

Or is there something we should be reading into the market?

I don't think there's anything to read into it there. I think it's just the nature of the leases that we had coming up.

I think also we had -- if we look at some of the leasing that we did earlier in the year was there was some really big lift that we had really low rates coming up, so.

Okay. And then just when you look at your outlook for 2026, like -- do you sort of see that as -- are there big swing factors in there that could have you hit higher than that or not reach those things -- not reach those targets?

Are there any key, like sort of, things coming up throughout the year that we should be particularly paying attention to?

Kelly can add color. I think it's a pretty volatile world out there.

I don't think anyone expected the geopolitical instability we saw last year. And I think -- we obviously really happy with how our business performed during all that upheaval.

And so -- but the answer is last year, we had 2 tenants filed CCAA completely from left field, unaffected by the tariffs. They just went less than that with 3 buildings that came back to us.

And so I think we did a fantastic job of working through that. And we don't see that anything like that on the horizon, but we didn't see it on the horizon last year.

So nothing that we're aware of, I think, to call out, but that doesn't mean things don't happen. And I'm just happy with how well the team has responded to the challenges that have come up over the last year.

Yes. And when I look out at the renewals in October, we have 150,000 square foot, and I fully expect we have an offer out with them, and we're negotiating back and forth right now.

End of December, we have 2 larger ones, 175,000 square foot and 80,000 square foot and we expect both of them to renew. I don't see any issue there.

So there's a decent lift there. The November 30th one, 90,000 square feet, that's the one we knew was coming back to us.

We're hoping and we have that listed now. So I mean, we're pretty hopeful.

And then when I look at the balance of kind of what comes up in the end of the year, we have one in Ajax. It's not a lot, but they paid us an early termination fee and that comes back, but I think we'll get some lift on that one.

And an early termination fee takes them to the end of their lease which is, I believe, end of September. And then we have another 20,000 square footer in Saskatchewan that's just a vacant -- it's going to be a vacated truck court.

So like an exterior type space that they're renting, we're actually going to -- in the planning stage to finish the space when we get it back in full and add to the GLA and be able to charge much higher rents. And Saskatchewan seems to be a pretty solid market for us right now.

So on the new deals and renewal deals, we're still pretty positive.

Okay. And then I guess just on the financing side, you guys have a significant amount of your debt sitting on credit facilities and your desire to get to investment-grade rating.

You've been very clear about that. Are you noticing any like change from lenders in terms of like the type of lending product they'd like you to take, like secured financing versus credit facilities?

Or is it just sort of been business as normal? I'm just trying to get a sense that banks have really changed at all sort of over the last couple of years.

Yes, in a very good way. And this is -- it's interesting being at this end of the table, I guess, when you start getting close to being an IG-rated lender -- borrower, everyone wants to lend to you just before that because they want part of the debt deal, right?

So absolutely, we have a huge amount of support from our banking syndicate and more banks wanting to join than we had ever hoped. And so it's a very good position to be in as we're just on that kind of cusp.

And so we're pretty relaxed about the timing of when we get there other than it's obviously substantial savings and additional flexibility to get to IG. So that's the rush, not from any kind of liquidity challenges.

It's just the tons of support for us out there from our group of bankers.

And that mid-9 number, that would put you like you think at like BBB mid, kind of rating?

No, I think what we go to BBB- is what we're trying to get, just trying to get IG and then go from there.

It's been a while. I just wanted to recircle back on Savage Road.

The [indiscernible] unit deal -- but I think you said micro industrial units. So is that a similar plan to Adams where it might be a partial sale?

Or I'm just trying to get a sense of how that works?

Less possible there, but possibly. Yes, it's possible.

There's a possibility of I do half rental, half for sale. So we're just working through that now.

Okay. And then just -- so you're collecting as you issue the units, or you will issue the units?

As we release the units. The distribution becomes payable and then we effectively get the distribution back.

Okay. Got it.

So -- but that really hasn't happened yet, right? Because you got only $0.7 million of that.

I think we have one batch out.

Yes. Just under -- $500,000.

Right. So can you just remind me why you go from an 8% to a 6% yield, like 8% return on your units and then it goes down to 6% on completion?

Yes. It's -- 6% cap in Richmond is pretty attractive.

We're looking at stuff right now and everything we see is in the high 4s, low 5s. So it's still a fairly decent -- its a way to, I guess, build our market cap using our currency.

I guess that's as best as I can say.

No, no, I get that. It's an attractive stabilized yield.

But what I'm trying to understand is I think unless I misunderstood, like you're getting an 8% return on the units you advance, but then are you saying that the terminal value would be a 6%? Are you saying that then the unlevered yield on completion is a 6%?

I'm just trying to...

We get a 6% yield on the units. So it's basically cash neutral to us.

So you're 8% in the interim, 6% on completion?

No, no. 6% in the interim.

Yes, it's not today's yield, right? It's at [ 10.50% ].

Just on -- I think you mentioned, Kelly, there's a tenant that paid an early termination fee in Ajax for taking -- I guess, the lease will wrap up in September. Will that late lease termination fee go into same-property NOI for this year?

Well, I think what that does is we account for it as rent, I believe, up until the end of the term. And if we lease it prior to that, then I will let Mike answer that.

Yes. No, it won't go into same-property NOI.

Okay. I appreciate that.

And could you share with us what the expired rent is on that building, or set of buildings?

It's one building. I cannot, off my head, remember what the expiry rent is that, but I know.

1,350.

So I think we'll have a pretty decent lift on that one.

All right, everybody, thanks so much, and we will see you next quarter.