Nexus Industrial REIT

Thank you for standing by. This is the conference operator. Welcome to the NEXUS Industrial REIT second quarter 2022 results conference call. As a reminder, all participants are in listen-only mode and the conference is being recorded. After the presentation, there'll be an opportunity to ask questions. To join the question queue, you may press star then 1 on your telephone keypad. Should you need assistance during the conference call, you may signal an operator by pressing star and zero. I would now like to turn the conference over to Mr. Kelly Hansik, Chief Executive Officer. Please go ahead.

Thank you. I'd like to welcome everyone to the 2022 Second Quarter Results Conference Call for Nexus Industrial REIT. Joining me today is Robert Chaston, the 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 cedar.com, for cautions regarding forward-looking information and for information about non-GAAP measures. There was another solid quarter in the book. As mentioned in the previous quarter, we look forward to the balance of 2022 and 2023, where we will begin to see significant rental rate growth in the portfolio, especially in our Southwestern Ontario portfolio. In the second quarter, we closed on an 80% interest in development land with RFA Capital Partners in Hamilton, Ontario, where we plan to build a 250,000 square foot industrial building with completion in late 2024. This is our second parcel of land in Hamilton with RFA for future development. And subsequent to the quarter, we have closed on a third development parcel. In Southwestern Ontario, our London portfolio is not only primed for significant rental rate growth, but also has the ability to add additional square footage to our existing facilities. We have submitted for permit for the construction of 100,000 square foot addition to our building at 1285 Hoover Road, which we hope to break ground early next year. In addition, we currently are negotiating with existing tenants in the portfolio for another approximately 100,000 to 125,000 square feet of expansion to their existing premises. And the REIT has 22 acres of excess land in the Titan Industrial Site in Regina, Saskatchewan. That was acquired in February 2022. And we have completed a design-build package, and we are actively marketing to build approximately 300,000 square feet built to suit. We also have the option to transact on 10 additional acres of additional land at the Acropolis warehouse facility located on the Edmonton airport grounds. As mentioned last quarter, we are under contract for three additional properties, a brand new strong covenant distribution center in Ottawa to be completed in January, 2023. One in London, which is a unit deal, which is in the process of having 150,000 square foot new addition being built and expected to be completed mid 2023. This is an extremely valuable site as there is significant additional land to continue to expand the facility as the TEN continues to grow. And then thirdly, an approximately 85,000 square foot cross dock facility to be built in Balzac, Alberta with one of the REIT's existing tenants, which is expected to be completed in late 2023. Subsequent to the quarter end, we closed on a 94,000 square foot strong tenanted A-class industrial facility in Quebec City. where we assume debt at the rate of 3.63%. We have also waived conditions on a 75,000-square-foot industrial facility in Montreal, where we will see annual rental rate increases of approximately 3.5%. We're also in due diligence on a four-building, approximately 450,000-square-foot industrial portfolio in southwestern Ontario for approximately $37 million, which is at a very attractive cap rate and a price per square foot. that we believe will provide considerable value to the league. As you can see, we have an active pipeline of deal flow, but we will slow this process after these transactions and focus on developing the aforementioned sites and higher returns within our existing portfolio. In Richmond, BC, we continue with the redevelopment of approximately 60,000 square foot building for two tenants. It is now expected that completion and possession to occur in mid-September as the final setup of their spaces is nearing. This will be a world-class facility upon completion. We're also planning a 74,000-square-foot addition, which would provide significant lift to the reef nav. We're also applying for bonus density, which, if approved, would allow for approximately 450,000 square foot of additional usable square feet to be built in the future, providing additional value to the site. Montreal, we continue to work with our developer on the sale of the excess land at Mayal d'Anjou. The developer is still moving along with approvals from the city. It is expected now that our first payment from them will be in February 2023. On the disposition front, we have sold a retail property located in Chateau Gay, Quebec for $8.3 million, and a purchaser has waived conditions on a mixed-use property in Longay, Quebec. Post-sales and post-closing of our industrial acquisitions, the REAP's holdings will increase to approximately 87% of NOI derived from the industrial sector. Our three-building office portfolio will be relaunched in the fall when it is anticipated that interest rates stabilize and the acquisition market begins to open up. In addition, our retail mall in Victoriaville, Quebec, will be launched for sale in the fall, now that we have completed a lease extension and expansion with our largest tenants. We also continue to negotiate a deal with a non-solicited offer for a portfolio of non-core assets that would allow us to recycle this capital in the future. I will now hand it over to Rob Chason to give greater detail of the REIT's financials.

Thanks, Kelly. As Kelly mentioned, we put some more of our capital to work on July 11th when we acquired a $19 million property in Quebec, and we have a firm deal on another $18 million acquisition in and another $37 million deal under diligence. The acquisitions completed in Q1 contributed to the REIT's results for a full quarter in Q2, and we saw our AFFO payout ratio come down from 96.7% in Q1 to 90.3% in Q2. Absent the impact of a $460,000 unrealized foreign exchange loss in the quarter, the payout ratio would have been 87.4%. The unrealized FX loss negatively impacted per unit measures by 0.6 cents. We have approximately $150 million of recently acquired properties that are unlevered and will begin to borrow against these properties in the third quarter to close the properties we have under contract. As anticipated, acquisitions completed mid Q1 generated an additional $1.5 million of NOI in Q2 as compared to Q1, partially offset by higher associated interest expense. Our Q2 G&A was approximately $500,000 lower than Q1, primarily due to the timing of RSU expenses driven by vesting. Q3 will see the positive impact of rental rate growth recorded in our Q2 MD&A, as well as leasing deals concluded subsequent to quarter end. All of this contributed to an increase in normalized FFO per unit from $0.19 for Q1 to $0.20 for Q2, $0.21 excluding the unrealized foreign exchange loss in the quarters. AFFO per unit increased from $0.165 for Q1 to $0.177 for Q2, and it would have been $0.183, excluding the unrealized foreign exchange loss in the quarter. For the remainder of 2022, we have approximately $20 million of mortgages at a weighted average interest rate of 3.55% that will mature. In 2023, we'll have approximately $50 million of mortgages with a weighted average interest rate of 4.26% that will mature. Bond yields have come back recently, almost 100 basis points off the recent highs. I'll now turn the call back to Kelly.