Nexus Industrial REIT
TSX:NXR.UN
| US |
|
Johnson & Johnson
NYSE:JNJ
|
Pharmaceuticals
|
| US |
|
Estee Lauder Companies Inc
NYSE:EL
|
Consumer products
|
| US |
|
Exxon Mobil Corp
NYSE:XOM
|
Energy
|
| US |
|
Church & Dwight Co Inc
NYSE:CHD
|
Consumer products
|
| US |
|
Pfizer Inc
NYSE:PFE
|
Pharmaceuticals
|
| US |
|
American Express Co
NYSE:AXP
|
Financial Services
|
| US |
|
Nike Inc
NYSE:NKE
|
Textiles, Apparel & Luxury Goods
|
| US |
|
Visa Inc
NYSE:V
|
Technology
|
| CN |
|
Alibaba Group Holding Ltd
NYSE:BABA
|
Retail
|
| US |
|
3M Co
NYSE:MMM
|
Industrial Conglomerates
|
| US |
|
JPMorgan Chase & Co
NYSE:JPM
|
Banking
|
| US |
|
Coca-Cola Co
NYSE:KO
|
Beverages
|
| US |
|
Target Corp
NYSE:TGT
|
Retail
|
| US |
|
Walt Disney Co
NYSE:DIS
|
Media
|
| US |
|
Mueller Industries Inc
NYSE:MLI
|
Machinery
|
| US |
|
PayPal Holdings Inc
NASDAQ:PYPL
|
Technology
|
If you don’t study any companies, you have the same success buying stocks as you do in a poker game if you bet without looking at your cards.
Utilize notes to systematically review your investment decisions. By reflecting on past outcomes, you can discern effective strategies and identify those that underperformed. This continuous feedback loop enables you to adapt and refine your approach, optimizing for future success.
Each note serves as a learning point, offering insights into your decision-making processes. Over time, you'll accumulate a personalized database of knowledge, enhancing your ability to make informed decisions quickly and effectively.
With a comprehensive record of your investment history at your fingertips, you can compare current opportunities against past experiences. This not only bolsters your confidence but also ensures that each decision is grounded in a well-documented rationale.
Do you really want to delete this note?
This action cannot be undone.
| 52 Week Range |
6.6
9.08
|
| Price Target |
|
We'll email you a reminder when the closing price reaches CAD.
Choose the stock you wish to monitor with a price alert.
|
|
Johnson & Johnson
NYSE:JNJ
|
US |
|
|
Estee Lauder Companies Inc
NYSE:EL
|
US |
|
|
Exxon Mobil Corp
NYSE:XOM
|
US |
|
|
Church & Dwight Co Inc
NYSE:CHD
|
US |
|
|
Pfizer Inc
NYSE:PFE
|
US |
|
|
American Express Co
NYSE:AXP
|
US |
|
|
Nike Inc
NYSE:NKE
|
US |
|
|
Visa Inc
NYSE:V
|
US |
|
|
Alibaba Group Holding Ltd
NYSE:BABA
|
CN |
|
|
3M Co
NYSE:MMM
|
US |
|
|
JPMorgan Chase & Co
NYSE:JPM
|
US |
|
|
Coca-Cola Co
NYSE:KO
|
US |
|
|
Target Corp
NYSE:TGT
|
US |
|
|
Walt Disney Co
NYSE:DIS
|
US |
|
|
Mueller Industries Inc
NYSE:MLI
|
US |
|
|
PayPal Holdings Inc
NASDAQ:PYPL
|
US |
This alert will be permanently deleted.
Nexus Industrial REIT
You don't have any saved screeners yet
Thank you for standing by. This is the conference operator. Welcome to the Nexus REIT Fourth Quarter 2018 Conference Call. [Operator Instructions] And the conference is being recorded. [Operator Instructions] I would now like to turn the conference over to Kelly Hanczyk, Chief Executive Officer. Please go ahead.
Welcome, everyone, to the 2018 year-end and fourth quarter results conference call for Nexus REIT. Joining me today is Robert Chiasson, 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 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.2018 was another solid year for the REIT. Once again, we have had a very successful year, continuing to build on our core fundamentals. From our inception in January 2014, we have focused on having a conservative balance sheet and have grown the REIT patiently with accretive acquisitions. Our AFFO payout ratio has continued to drop from 99% at our inception, down to 83% over this time, while keeping our debt to GBV at a relatively low 51.7%. We completed $91.5 million in new deals in 2018, growing our asset base to approximately $550 million. Yesterday, we announced that we closed on another highly accretive industrial deal, bringing the industrial sector exposure to approximately 50% based on NOI. We funded this purchase with approximately 15 million in units issued at $2.10 per unit, with the balance funded from 5-year debt at 3.47%. From a leasing perspective, the overall portfolio ended with -- ended the quarter at approximately 94.6% occupancy, up from the previous quarter of 93.9%, with gains across the entire portfolio.At 25 -- 2045 Rue Stanley, occupied or committed space in this property currently sits at approximately 82%, the same as the previous quarter, keeping in mind our interest is 50% of this jointly owned property, rent will commence in June on 8,200 square feet and another 7,100 square feet in August of this year. We continue to market the vacant spaces and are hopeful to see some more activity in the coming months. After experiencing permitting delays, which have now been resolved, tenant improvements at our Richmond, BC, asset are moving along and expected to completion scheduled by the end of the year. Until complete, the vendor is responsible to fund the rental obligations, which will be replaced by lease revenue out -- throughout the year. We have delayed the Phase 2 plan until we have substantial completion of the build-out for existing tenants. I'll now hand it over to Rob Chiasson to review the financials.
Thanks, Kelly. Our portfolio continues to deliver consistent results. We acquired a property in Calgary, Alberta on October 17, and the Beamsville, Ontario acquisition completed on August 1, contributed NOI for the full fourth quarter. Excluding the increase in NOI related to these acquisitions, NOI remains relatively consistent. Included in NOI for the first quarter are approximately $75,000 of leasing fees related to the 2045 Rue Stanley property, which we own through a joint venture. This is a onetime NOI improvement. Subsequent to the end of 2018, we filled the 23,000 square-foot vacancy at our Griffith Street, Saint Laurent property, and rents commenced March 1. This space was vacant in the fourth quarter.In the first quarter of 2019, we'll see the benefit of contractual CPI increases of approximately $50,000 for the quarter as well as the impact of snow removal and utility costs. I'll remind those listening that the property we acquired in Richmond, BC, is undergoing tenant setup, and the vendor is obligated to complete the build-out at the vendor's cost and has guaranteed NOI until build-out is complete and tenants are occupying and paying rents for their leases. For IFRS accounting purposes, this vendor income guarantee is not included in NOI, and accordingly, we have normalized FFO and AFFO to include this. Normalized AFFO per unit for the quarter of $0.049 increased 2% compared to Q4 2017 normalized AFFO, and increased 1.4% compared to Q3 2018 normalized AFFO. Normalized AFFO payout ratio for the year of 83.3% is down from 83.6% for the year ended December 31, 2017. Q4 2018 normalized AFFO payout ratio of 81.6% decreased from 82.6% for Q3 2018. Looking at the balance sheet. Our debt to total assets decreased from 53.6% at September 30 to 51.7% at December 31. The decrease was largely driven by IFRS valuations, which increased the carrying value of our assets. Fair value adjustments of investment properties totaled approximately $19 million in the quarter. We increased the debt on one of our properties by $4 million in the quarter to add strength to our balance sheet. Proceeds were used to pay down our revolving credit facility, and the change was slightly positive to interest expense.Our $65 million credit facility matures in July of this year, and we have $60 million of principal maturities on mortgage debt coming up in 2019. Of the $60 million of mortgage maturities, we ventured into a new mortgage commitment with respect to $37 million of mortgage principal maturing this month. While it's early, we're in discussions with respect to the remainder of debt maturing in 2019, bond yields are at relatively low levels, and if they remain at these levels, we may be able to replace maturing debt on favorable terms. I'll now pass back to Kelly.
Thanks, Rob. I'll now open up the call to any questions.
[Operator Instructions] Our first question comes from Brad Sturges of Industrial Alliance Securities.
Rob, just on your commentary with the financing, the $37 million, can you give a little bit of color in terms of expected interest rate in term?
Yes. So it's broken out into 3 tranches, 3 equal tranches, 5-year, 7-year and 10-year money. And right now, based on where interest rates are sitting, we're expecting rates to be somewhere in the 3.6% range.
Yes. And for the remaining piece of debt that you would look at renewing this year, refinancing this year, what would be your expectations for rates there? And would it be similar rates, or I guess, depending on the assets?
Yes, it depends on the assets and it depends on spreads that lenders either maintain or adjust. In terms of underlying bond yields, if we're to look at -- so on the revolving credit facility, there's $30 million of that, that's fixed at 3.9%. And then, there's another approximately $20 million that's fixed at 3.63%. If we look at bond yields compared to when those loans originated to now, bond yields have gone down a little bit. And so I expect we'd be able to renew that on similar terms, perhaps a little bit better. And then, the remainder of the -- of that revolving debt is either prime advances at just over 5% currently or BA advances. And while longer term rates have come down, shorter-term rates, the BA rates have gone up. So we could again have a bit of an opportunity to replace that at lower interest rates. And then, in terms of the mortgage maturities, those are maturing. So aside from the little more than half of the mortgages that we've already dealt with, most of those come up in the later quarters of 2019. So it depends a little bit on where bond yields are at that time. But right now, it's looking favorable that we may have some lower interest passed on some of those renewals.
Okay. That's good color. Kelly, in terms of -- you just closed the most recent acquisition. I think it was mentioned in the last press release about a Montréal acquisition in negotiation. Where does that stand?
Yes, we're a little bit delayed on that one. We've got some lease issues that we're hammering out with the vendor, and we'll see how those go. And right now, I would say it's, I don't know, 60-40 that we would complete it or not. It depends on if we can hammer out the terms that we want on the deal, so we'll see in the next quarter probably.
Okay. And in terms of the acquisition pipeline overall, what are you seeing? And is it a fairly active pipeline right now?
Yes, I think you'll see the same sort of type of transactions that we've done in the past. We're looking at a couple right now in addition to that, other one in early stages. So they keep popping up. We keep plugging along and manage to complete a decent chunk every -- it seems every 6 months. So I'd say it's kind of the normal pipeline that we've seen in the past several years.
And with Richmond, any update on Phase 2 planning right now?
No, we're -- I guess, planning-wise, we were delayed on Phase 1 because of the permit problems with the city of Richmond, but that's been resolved now, so they're moving along. And we'll just wait till they get further along, I'd say towards the later part of the year, third, fourth quarter. And then, we'll start earnestly looking at the planning for Phase 2 again. We just want to be prudent and make sure we're along on Phase 1 before we commit to Phase 2.
Our next question comes from Mike Markidis of Desjardins.
Bit of a wanderlust here. Rob, the lease at 35 -- 3490 Griffith, I can't remember if you said beginning of March or end of March, that'd be question one. And then what's the rent on that building? On that lease?
So it's the beginning of March, and I don't know if we want to disclose the exact rent. It's a single tenant that's occupying that space, but...
I'd say it -- to our results, it's about -- it represents probably about $225,000 annually, like in overall rent.
$225,000 annually. Okay.
Yes.
That's a net lease?
It's a net lease. But if you take the net plus the additionals, yes.
Okay. Perfect. The fee income, I think you said it was $75,000 during this quarter, so that was just the leasing component. What's the total fee income for this quarter?
Total fee income -- so total fee income, I mean, we have a $500,000 fee that we get from the Sandalwood portfolio. And so all in all, we were around -- excluding that, we're about 400,000 -- $500,000 for the year in all of our fees excluding that, sort of about $1 million in total. And then, we also had fees at Gatineau and Stanley that, for the year, totaled -- well, they totaled to $500,000. So it's $500,000 in fees from Gatineau and Stanley, and then another $500,000 of fees from Sandalwood portfolio.
Okay. Perfect. Got you. Okay. Just with the sports mall, the Richmond asset, the vendor support, I understand that's until all those tenants start occupying and paying lease, paying the rent. Is that amount equivalent to the expected -- the contractual income that's in place? Or will there be a lift? Or will it come down?
It's equivalent. So when we did the purchase agreement, we determined what the underwritten NOI was and supported by leases. And that's the amount that the vendor's paying until the tenants take occupancy.
Okay. Like I said, this is a bit of a wanderlust here, but the $37 million of mortgage financing sounds like you got committed and will be a takeout, is that a straight -- this $37 million, the amount of principal that's maturing, are you guys actually pulling incremental capital out of that?
That's equal to the principal maturing.
Okay. And just given your short weighted average term for your debt and given where the bond yields have come down to, is it at all possible that you guys might look to refinance earlier the fees based on penalties and lock-in with rate to a longer term on some of the other stuff that you've got coming maybe in the next 12 months?
It's something we can look at. We do have yield maintenance on a bunch of things. But sometimes, it makes it economically difficult. But yes, it's something we would consider.
Okay. Two more for me before I turn it back. Just on your -- you had nice a fair value right up this quarter. It looks like that was all cap rate compression, but you did make a comment with respect to not including the vendor income support in the valuation, and it seems like you are now. So I'm just trying to get a sense of what was the driver of that $19 million change. Was it all cap rate compression? Or was it also because you weren't including the income support before, and now you're including that?
Well, actually, it doesn't -- the income support doesn't impact. We acquired the Richmond property at April 30, 2018. So under IFRS, we carry that at the purchase price, which is seen as the best indication of fair value. So where we did adjust though is we have contractual rent increases on a number of properties, CPI and also set rate increases. And so we had 6 properties that were appraised externally. And those generated some pickup through a combination of cap rate compression and also higher NOI. And we also acquired the Sandalwood properties last year in July of 2018. And those were carried -- or sorry, July of 2017. Those were carried at purchase price well, and the purchase price on that portfolio was roughly $10 million lower than the appraised value at the time we acquired. So we increased it somewhere sort of in between the purchase price and the appraised values on the date of acquisition. We made some adjustments to stabilized NOI. Might arguably say I was a little bit conservative, but yes, so that's driving a good chunk and then just the appraisal updates where we had higher NOI combined with a little bit of cap rate compression.
Okay. That's fair. Last one from me. Just on your AFFO reserves, just looking at the fact that you guys had spent a decent chunk more than what you were reserving, and then the verbiage in there suggest that it was elevated because of the first full year of having Sandalwood, but that you expect it to remain elevated for the next 2 to 3 years, and just given the environment that we're in with retail, if you guys have given any thought to revisiting that reserve in light of those sort of 2 facts?
Well, I guess, there's a couple of things. If you look at our historical, there was a long period of time where we were reserving and not spending. And now, we're spending a little more than we're reserving but we had a major project at one of our locations, major repairs to a parking structure. And so there was some deferred maintenance on these properties that we acquired. And that was part of the reason we were able to negotiate a $2 million CapEx escrow. So we don't talk about that but it goes a long way towards offsetting a lot those CapEx. The other thing is we're adding the mass -- sorry, we're adding the portfolio that we announced recently in Western Canada, and that's an industrial portfolio where it's fairly triple net and carefree to us as landlord. So we'll put a reserve against that and we don't anticipate spending very much. And so things will balance out. And we will also keep an eye on our -- we will also keep an eye on our reserve but we were anticipating a little bit of deferred maintenance and some higher spend initially on the Sandalwood portfolio in particular.
Our next question comes from Himanshu Gupta of GMP Securities.
So when do you plan to start reporting same-property NOI growth numbers?
Yes. So that's something we'll look to in 2019. Part of the issue, as you know, this year was we acquired or merged with Nobel April of 2017, and then we did the Sandalwood deal in July of 2017. So the same-store numbers were not very meaningful for a large chunk of the year, but that is something we will look to reporting later in 2019.
Sure. And you mentioned that quarter 4 versus quarter 2, quarter 3, I mean, sequentially, NOI was pretty flat. Is it fair to say that on a same asset basis?
Yes.
Right. Okay. And then, just moving on to the acquisition pipeline. I mean, just to follow up on that question. So do you have a certain target exposure in mind in terms of the percentage of overall portfolio? Like target exposure to industrial, retail and the office? And so just trying to gauge what is the acquisition criteria or the strategy going forward? I mean, do you view certain markets or cap rates?
I've always said we've been more focused on the industrial market. You can see the one we closed on yesterday was industrial. We have a few more industrials that we're looking at. Our 50%, where we are right now, will kind of be our guideline. I would say that we would stick to on the industrial side and then with the spattering of office and retail in there as well. So most of the things we're seeing right now are in the industrial side.
Great. And Kelly, nearly you mentioned about the industrial portfolio we -- you closed recently, so how did you find this portfolio in the secondary market?
It was, I guess, brought to us by -- the interesting thing is once you do some of the unit deals and you get known for doing them successfully, the deals kind of come to you. And we're known to do them out West and we've been successful in completing them out West, and we have a good partner in TriWest that knows the majority of the tenants and the things that we'd be looking at. So we get some good due diligence from there. So I'd say most of them are kind of word-of-mouth.
This particular portfolio came direct at one point and then resurfaced through a broker later.
Got you. And looks like a good transaction there, but how deep are these markets? I mean, if a tenant were to leave, can you backfill the space here in some of these markets?
Yes, and it wouldn't be overly easy because there would be -- it's a tougher market to re-lease, I guess it is, but there's good, decent term on it. The covenant is really good. And I guess I would call the facilities kind of mission-critical to them. So we know the covenant. It's doing extremely well. I've had good relationship with the CEO of the company. So we're pretty certain that on the renewal, they would stay. So we have pretty good confidence in it.
[Operator Instructions] Our next question comes from Steve McLean of Real Estate News Exchange.
I'm just wondering if you can provide a little bit more detail on the transactions in the properties themselves regarding the one just announced yesterday and the 4 announced at the end of February.
Yes. It's 4 industrial in Western Canada. I don't usually like -- I know it's a company called MasTec Canada. It's a...
Can you repeat that again?
MasTec, M-A-S-T-E-C, is the tenant and a good, solid tenant. The financials are pretty good. It's a New York Stock Exchange-listed company. So overall, very strong covenant for us.
And for the property from yesterday?
Sorry, that was closed yesterday, which...
Okay. And what about the ones from February?
We didn't close on a property in February. We made a press release with another property in Québec that I'd say...
Yes, you put out a press release in February 28 announcing 4 acquisitions.
Yes, that's the one that we closed yesterday.
Okay. And that's with the 4 properties?
Yes.
[Operator Instructions] This concludes the question-and-answer session. I would like to turn the conference back over to Mr. Hanczyk for any closing remarks.
I'd like to say it looks like, for the balance of the year, we have pretty good leasing momentum with filling our vacancy at Griffith and with some other deals that we have. We have a pad site that's going to go ahead in Victoriaville, another one of our properties, with some leases coming on throughout the year at Stanley, and some renewals that we have and some expansions. We're in pretty decent shape, I think, when you see the second half of the year. So I look forward to the next conference call and issuing our next series of results.
This concludes today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.