Nexus Industrial REIT

Welcome to Nexus Industrial Geek second quarter of 2025 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 1 on your cell phone keypad. Should you need assistance in the conference call, you may press signal and operate by pressing star then 0. I would now like to turn the conference over to Kelly Henshicks. Chief Executive Officer. Please go ahead.

I'd like to welcome everyone to the 2025 Second Quarter Results Conference Call for Nexus Industrial REIT. Joining me today is Mike Wall, Chief Financial Officer of the REIT. Before we begin, I'd like to caution with regard to forward-looking statements and non-draft measures. Certain statements made during this conference call may constitute forward-looking statements which reflect the REIT's current expectations and projections of our future results. Also during this call, we'll be discussing non-draft measures. Please refer to our MD&A and the REIT's other securities patterns, which can be found on our website and at cdr.com for cautions regarding forward-looking information and for information about non-GAAP measures. All right, the second quarter was our first of the PurePlex Canadian-focused industrial REIT, and I'm very pleased with the results. Despite selling our office and retail portfolios in some non-core industrial buildings over the past 12 months, which is 33 properties in total, Our net operating income increased this quarter by 1.7% to $32.2 million compared to a year ago. This is a fantastic achievement. This growth can be largely attributed to three things. One, strong leasing and robust growth in this industrial-planned property NOI. Two, the completion and tenanting of profitable development projects. And three, accretive capital recycling through the disposition of legacy non-core buildings and the acquisition of high-quality tenants and industrial properties. I will discuss each of these in more detail. So the second quarter was another strong leasing quarter for Nexus. At the beginning of April, we facilitated an early lease termination at our 42nd Street East property in Calgary and re-leased from the property to a large multinational energy company effective August 1st under a very long-term lease with significant rent loss. The termination fee left us slightly ahead during the May to July picturing period. Combined with the higher rent from the new tenant, we will earn an additional NOI of $175,000 in 2025 and $250,000 in 2026. In total, we completed nearly 400,000 square feet of new leases and renewals, and on these renewals realized a rent lift of 38%. These actions combined with embedded red escalation in our leases resulted in industrial-stained property NOI growth of 2.8% in the quarter and 4.3% for the first half of the year. We are on track to hit our target of mid-single-digit industrial-stained property NOI growth again in 2025. Of the approximately 1.7 square feet of GLA that was set to expire this year, we have leased over 90%, and we are in discussion with tenants on the remaining 10%. You will recall that in the first quarter, we had two tenants enter credit or protection. I'm pleased to share that last week, we signed a 15-year lease with one of Canada's largest construction services firms for our 223,000-square-foot building at Clark Road in London, Ontario. This building was vacated in April after PV Mart entered credit or protection. The new tenant has taken off since the effect of August 1st. During their six-month fixing period, the new tenant will invest approximately $8 to $10 million to update the building and pay rent of $3 per square foot, roughly equivalent to PV Mart's exit rate. In January 26, the fixing period ends, and the rent ramps up to $7 per foot net, and the annual rent steps of $1 a foot until 2031, and then it goes 2% thereafter. Our ability to quickly backfill this property is a testament to the strength of our operating team, our connections in the southwestern Ontario market, and the quality of our portfolio. In April, P.G. Martin also vacated a second building at Fort 40th Avenue in Red Deer, Alberta. We are in discussions with a few prospective tenants, however, it is not yet leased. The building is 190,000 square feet, which is large for that area, so we need a specific user. We are marketing it for both lease and for sale. in the event we find an owner-operator who is interested in it. At our cross-stock facility at 102 Avenue in Southeast Calgary, the receiver has continued to pay rent and plans to vacate at the end of September. We have a tenant lined up to take possession shortly after the receiver vacates, with a two-month fixing period. We expect to finalize the lease in the coming weeks once we receive official notice from the receiver. In the second quarter, we advanced construction on two development properties, In August, we plan to complete construction of the new 115,000 square foot small bay industrial building at 102nd Avenue in southeast Calgary. And leasing is ahead of schedule. We already have tenants for eight of the nine units, three of which are firm and five are conditional. And we expect the cash flow to be fully stabilized by the end of the year, way ahead of our schedule. The total project cost is $15 million and will deliver an 11% unlevered return on investments. By the end of August, we will have substantially completed construction at our 325,000 square foot project at Dennis Road in St. Thomas, Ontario. We've been earning 7.8% on our development costs at this project as they have spent. However, effective September, having now met the criteria for substantial completion, the project will transition to earning a full 9% yield on development costs of $55 million. We are still looking for a tenant for our 115,000 square foot rubber road new build in Hamilton, which we completed last summer. We own 80% of the property and expect to earn a 5.9% building yield on our $20 million share of the development costs. There's been a challenging market in Hamilton. It is very much slowed over the summer months, but we do have a brand new state of art 40 foot clear leaf certified product, and I'm optimistic that it will be leased in the fall when the market starts to pick up. This summer has been pretty slow in that market. In the second quarter, we announced two additional development projects, which will get underway in Q3, Q4. First, we acquired the land surrounding our industrial building at 555 Adams Road in Kelowna, B.C. for $19 million, composed of $12 million in cash and our vacant industrial property in Fort St. John. We are in the planning process to build small bay industrial units on this property. In view of the demand for more space at our Richmond property, we will add an additional 52,000 square feet for an estimated cost of about $29 million. Cost will be paid in REIT units, issued at $10.50 per unit. REIT will earn 6% of cost during construction period and will earn a contractual 5% yield upon completion. Construction is scheduled to begin in the fourth quarter or early first quarter of next year. Nexus has a track record of opportunistic capital recycling through the disposition of legacy buildings and acquiring newer, high-quality tenant industrial buildings. In the second quarter, recent acquisitions contributed approximately $600,000 to NOI compared to the same quarter last year. During the quarter, we also sold two empty, non-core industrial buildings for a total proceeds of $11.2 million. The proceeds were recycled to acquire vacant land for future development and for debt reductions. We are also under contract to sell our excess land at a remaining retail property at Aldonju. We expect the land sale to close in August, so scheduled for about mid-August right now, which will give us past proceeds of $8.5 million after we will look to then sell our 50% ownership in the mall. So the mall is an attractive asset and it cash flows well historically, so we expect it to have quite a bit of interest. In summary, we continue to advance our strategy in 2025 as a Canada-focused pure-play industrial league. We will continue to realize organic growth through embedded rent steps and positive mark-to-market on renewal. And we've made excellent headway on our developments, two of which will be completed in August. So I'll now turn the call over to Mike to give some more comment on our financial.

Thank you, Kelly, and good morning, everyone. Starting with headline earnings in the quarter, we posted a net loss of $7.6 million, a $51.2 million decrease compared to a net income of $43.5 million last year. The decrease was primarily due to a lower fair value adjustment on Class B LT units by $35.8 million and a lower fair value adjustment on investment properties by $24.7 million, partially offset by a higher fair value adjustment on derivative financial instruments of $7.7 million and a lower finance expense by $1.2 million. As Kelly mentioned, our Q2 net operating income increased by 1.7% or half a million dollars year over year to $32.2 million. Of this amount, opportunistic lease terminations and tenant reimbursement of capital improvements accounted for $1.5 million. New acquisitions accounted for $600,000. An increase in same-property NOI added an additional $400,000, and development projects added $200,000. This growth was partially offset by $2.2 million relating to asset dispositions made since the second quarter of 2024. Normalized FFO for the period was 18.8 cents per unit an increase of 6% compared to 17.8 cents from a year ago, and normalized ASFO for the period was 15.9 cents per unit, an increase of 7% compared to 14.8 cents from a year ago, primarily driven by lower interest expense due to higher capitalized interest and by the higher net operating income that I just mentioned. Total general and administrative expenses for the quarter were $2.2 million, which was $300,000 higher than a year ago, predominantly due to higher compensation expense. Net interest expense in the quarter was $12.7 million, a $1 million decrease from the same period last year. The decrease was primarily due to higher capitalization of interest expense on development properties of $700,000 and due to lower interest on mortgages by $300,000, resulting from property dispositions. At June 30th, Our NAD per unit was $13.17, a 4 cents per unit decrease from last year. Our weighted average cap rate increased by 6 basis points to 5.87% in the quarter, compared to 5.81% at March 31. The carrying value of our investment properties increased by $11.5 million in the quarter, primarily due to $18.8 million of acquisitions, namely the land in Kelowna, B.C., development spend of $8.5 million, and capital expenditures and tenant improvements of $4.2 million. This was partially offset by $10.8 million of negative fair value adjustments and a $9.2 million reduction from investment property reclassified to assets held for sale. Subsequent to quarter end in August, we upsized our existing syndicated committed credit facility by $160 million to a total of $785 million and expanded its expiry by 1.5 years. It now consists of a $200 million term loan expiring in August 2027 and a $585 million revolving facility expiring in August 2028. I will now turn the call back to Kelly.