It has taken five years, but Nexus Industrial REIT (NXR-UN-T) is now receiving over 99 per cent of its net operating income from its industrial assets, essentially completing its transition from a diversified REIT into a pure-play industrial trust, its CEO says.

Nexus sold 15 of its 16 retail properties and one office building for $50.9 million in its fiscal first quarter to complete the strategic transition into the only Canada-focused, pure-play industrial REIT. Nexus is down to one remaining retail property and two office properties in Quebec - in which it owns 50 per cent interests. All remain on the market. 

Nexus owns interests in 89 properties (including one held for development) comprising approximately 11.7 million square feet of gross leasable area. 

The REIT has severed part of the land at Montreal’s Les Halles D’Anjou mall and now has it under contract to sell. CEO Kelly Hanczyk said during Nexus' Q1 financial conference call with analysts this month the deal is expected to close in July for cash of about $6 million and a vendor take-back of about $3 million. 

Hanczyk anticipates the mall will sell quickly but said the Montreal and Gatineau office buildings “will be a longer-term project” due to their “low value and the nature of the partnership agreements.”

Industrial asset performance

Industrial now contributes over 99 per cent of Nexus’ NOI on a pro forma basis, and the sector has been performing well according to Hanczyk. Industrial in-place and committed occupancy increased to 97 per cent from 96 per cent in 2024. 

“Operations have performed very well despite the economic turbulence” caused by the tariff war started by the United States, Hanczyk said. “Approximately 85 per cent of our NOI is derived from tenants who are Canadian distribution and third-party logistics.

"Our leases have a relatively long WALT of seven years, which reduces renewal risk, and our leases are on average 20 per cent below market rate, which gives us pricing flexibility on renewal. Our portfolio is well-diversified across Canada and we have strong tenant relationships, as evidenced by the frequency of our tenant up-sizing and development partnerships.”

NOI increased by 8.6 per cent from a year earlier to $32.09 million due to acquisitions, organic growth and development. There was 6.6 per cent growth in industrial same property NOI, increasing it to $27.35 million.

Nexus has assets valued at $2.57 billion and net debt of $1.26 billion. Its total indebtedness ratio dropped to 48.8 per cent from 49.1 per cent a year earlier.

Development and leasing update

Construction continued on a 325,000-square-foot expansion project for an existing tenant on Dennis Road in St. Thomas, Ont. and a 115,000-square-foot small-bay complex on 102 Avenue SE in Calgary that’s adjacent to a building which Nexus owns. Seven of its nine units have been conditionally leased.

The two properties will combine to add annual stabilized NOI of $6.6 million when completed, which is expected in the third quarter.

“We're still looking for a tenant for our 115,000-square-foot project on Glover Road in Hamilton, which we completed last summer,” Hanczyk observed. “It has been a challenging market in Hamilton, but we have a brand new state-of-the-art, 40-foot clear, LEED-certified product, and I'm optimistic that it will be leased this year.”

Subsequent events and outlook

Nexus acquired land adjacent to one of its existing properties on Adams Road in Kelowna, B.C. for $18.8 million on April 14. It’s intended for small-bay industrial condominiums that will start construction in July. The deal involved the transfer of a vacant non-core industrial property in Fort St. John, B.C. valued at $7 million, with the balance settled in cash.

The REIT concurrently entered into an agreement with the vendor of its Richmond, B.C. property to develop 51,467 square feet for additional space and parking, representing a value of approximately $29 million.

Nexus anticipates mid-single-digit same property NOI growth in its industrial portfolio for the full year.

“We have already renewed over 80 per cent, or 1.4 million square feet, of GLA that was set to expire this year,” Hanczyk said. “The growth on expiring rents for these renewals is 30 per cent, representing $3.5 million of additional NOI.”

Hanczyk is optimistic about Nexus’ future prospects and long-term growth, which he summarized this way:

“We're making excellent headway on our development. We will continue to recycle capital. We will continue to realize organic growth through embedded rent steps and positive mark-to-market on renewal.”