Nexus Industrial REIT

Thank you for standing by. This is the conference operator. Welcome to the NEXUS Industrial REIT third 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 will be an opportunity to ask questions. To join the question queue, you may press star then one 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 Kelly Hansik, Chief Executive Officer. Please go ahead.

Thank you. I'd like to welcome everyone to the 2022 Third Quarter Results Conference Call for Nexus Industrial REIT. Joining me today is Robert Chason, 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. But it was another solid quarter in the books for the third quarter. I'm looking 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, and our development pipeline starts to ramp up. We're in the next phase of our evolution, where we will continue our repositioning with the high grading of our portfolio, creating one that is of an institutional quality. In southwestern Ontario, our London portfolio is not only realizing but also primed for significant rental rate growth. We are also awaiting permit for the construction of a 100,000 square foot addition to our building at 1285 Hubrie Road, which we hope to break ground early next year. Which was originally planned as a speculative addition now looks very promising for being pre-leased as we are just awaiting on a signature on agreed upon terms on an LOI for the space. In addition, we are currently waiting for two existing tenants approval in the Southwestern Ontario portfolio to add another approximately 65,000 square foot each of expansion space to their existing premises. As mentioned previously, the REIT has 22 acres of excess land at the Titan industrial site in Regina, Saskatchewan that was acquired in February 2022. and we have submitted a design-build package to an existing tenant in the REIT's portfolio to construct an approximately 300,000-square-foot builder suit. This looks very promising as the tenant is currently seeking approval from its parent company. If successful, we would still have 6.5 acres of developable land left at this site. These aforementioned developments would be completed at an approximate return of 8% to 10% to the REIT. As mentioned last quarter, we are under contract for three additional properties, a brand new build strong covenant distribution center just outside 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. Is there a significant additional land to continue to expand the facility as the tenant continues to grow? Thirdly, an approximately 85,000-square-foot cross-stock facility to be built in Calgary, Alberta, with one of the REIT's existing tenants, which is expected to be completed in early to mid-2024. In the current quarter, we closed on a 94,000-square-foot strong tenanted A-class industrial building in Quebec City, where we assume debt in the rate of 3.63%. We also closed on a 75,000-square-foot sale leaseback industrial facility in Montreal, with an annual rental rate increases of 3.5%. And subsequent to the quarter end, we have also closed on a small building in Cornwall, Ontario, with one of the REIT's existing tenants, which is the same tenant as the new building in Calgary, at a 7.25% rate, as we have a long-standing relationship with the tenant, and we hope to continue to build on this relationship going forward. Finally, we closed on a four-building, approximately 450,000-square-foot industrial portfolio in southwestern Ontario for approximately $39 million at a very attractive cap rate of 7% and a price per square foot well below replacement value. As you can see, we have and continue to have an active pipeline of off-market opportunities, and we'll continue to recycle capital into both developing the aforementioned sites at higher returns within our existing portfolio and newer Class A industrial opportunities with solid annual increases. We have built a strong relationship with several developers in the industry, which should continue to provide ample opportunities to the REIT in major markets going forward. In Richmond, BC, we continue with the redevelopment of the approximately 60,000 square foot building for two tenants. One of the tenants commenced her lease on September 1st with a free rent period to expire on November 30th, and the other is expected to commence very shortly. We also continue to plan for 74,000 square foot addition, which would provide significant lift to the REITs nav. We're also applying for bonus density, which is when it's approved and if it's approved, would allow for approximately 450,000 square feet of additional usable square footage. Whether we build it or not, we will decide later in our life cycle here, but it would provide huge additional value to the site. In Montreal, we continue to work with the developer on the sale of the excess land at Les Halles d'Anjou. He's still working along with approvals from the city, but we anticipate closing of the transaction in February of 2023, which would allow us to realize our first payment from the developer. We continue the process of reallocating and high grading our portfolio by selling some of its office retail and non-core industrial buildings and reinvesting the proceeds to acquire high quality industrial buildings creating an institutional quality portfolio. On August 3rd, we sold a retail property tended by Rona at 41 St. Jean Baptiste Boulevard in Chateau Gay for $8.3 million. On October 4th, the reclose on the sale of a retail property at 1185 Chemin de Tremblay in Longueuil for $11.85 million. And we're also under contract right now to sell a property portfolio of smaller industrial properties in saskatchewan and we are currently have an executed loi for our grocery anchored retail property in victoria ville quebec quebec our three building office portfolio will be relaunched when it is anticipated that interest rates stabilize and the acquisition market for suburban office begins to open up we'll continue to look for other non-core industrial and slowly phase out of those and redeploy that capital into Class A facilities in the, probably mostly in Montreal area in Ontario. Post sale of our Victoriaville property and post closing of our Ottawa acquisition, the REITs holdings will increase to approximately 90% of NOI derived from the industrial sector. So it's moving along quite quickly. I'll now hand it over to Rob Chaisson to give greater detail of the REIT's financials.

Thanks, Kelly. As Kelly mentioned, Q3 was a solid quarter for the REIT in line with our expectations. We completed $40.5 million of acquisitions in the third quarter and a $39 million acquisition subsequent to quarter end. The weighted average cap rate on this $80 million of acquisitions is 6.2%. We assume $9.5 million of debt at 3.63% on these transactions. with a balanced finance through new debt. The impact of our acquisitions combined with positive same-store NOIs saw our AFFO payout ratio decrease from 90.3% for Q2 to 88.9% for Q3. Q3 per unit measures were once again impacted by foreign exchange losses of 0.6 cents per unit. Absent the impact of the $460,000 unrealized foreign exchange loss in the quarter, the payout ratio would have been 86.1%. We increased our credit facility by $100 million in the quarter with the increase secured against 10 previously unencumbered properties. On the investment property valuation front, we applied some cap rate expansion or evaluation of the retail and office assets. We also applied some cap rate expansion in our valuation of some of our industrial assets. However, that was more than offset by increases to stabilized NOI. The recently announced summit transaction implies that there is significant value in Ontario and Montreal industrial assets in particular. For the remainder of 2022, we have approximately $5 million of mortgage at a weighted average 3.55% interest rate that will mature. And in 2023, we'll have approximately $50 million of mortgages with a weighted average interest rate of 4.35% that will mature. The bulk of the REITs in place mortgages mature 2026 on, and we're not significantly exposed to renewal rates. I'll now turn the call back to Kelly.