Nexus Industrial REIT

Thank you for standing by. This is the conference operator. Welcome to the NEXUS Industrial REIT third quarter 2025 results conference call. As a reminder, all participants are in a 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 to zero. I would now like to turn the conference over to Kelly Hansik, Chief Executive Officer. Please go ahead.

I'd like to welcome everyone to the 2025 Third Quarter Results Conference Call for Nexus Industrial REIT. Joining me today is Mike Rall, 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'll be discussing non-GAAP measures. Please refer to our MD&A and the REIT's other securities filings, which can be found on our website, netcedar.com, for cautions regarding forward-looking information and for information about non-GAAP measures. In the third quarter, we took another step in our journey as Canada's industrial building partner by completing two exciting new industrial developments and by completing another strong quarter of leasing. Combined, our new developments will add 440,000 square feet of additional GLA and will generate $6.6 million of annual stabilized NOI, representing an enviable 9.4 unlevered return on development costs. On the leasing front, We continue to drive strong organic growth, completing the backfill of two of the three properties vacated by CCA tenants earlier in the year, advancing leasing on the remaining 2025 and upcoming 2026 renewals, and delivering healthy same-property NOI growth in the quarter. I will dive into both the development and leasing achievements into more detail, but first I'd like to reflect on how far we've come in the last 12 months. In September 2024, we were growing industrial REIT, but we still had 16 retail buildings with over 1.6 million square feet of GLA. We also still had six office buildings with nearly half a million square feet, having just closed on the sale of six other office buildings. We had completed three development projects, but still had significant work to do on our largest project in St. Thomas, and we hadn't yet broken ground at our 102 Avenue project in Calgary. Today, one year later, we are in a completely different position. We have nearly sold all of our retail and office buildings at good prices and have used the proceeds to reduce debt and complete development. We are now a pure play industrial REIT with over 99% of our NOI derived from industrial assets. And this quarter, we completed two more attractive projects. We have come a long way in a short time, and I'm immensely proud of our team and the work that we have done. Looking more closely at the development projects that we finished during this quarter, the larger property was a 325,000 square foot expansion, our largest development yet, of our building at 770 Dennis Road in St. Thomas, Ontario. This expansion was for an existing tenant, Element 5, a leading laminated timber manufacturer. The project was originally planned at 70,000 square feet, but as attendance needs grew, we worked with them to adjust the building scope. This resulted in a huge win-win. Element 5 has a North American flagship facility, while Nexus owns a well-located, high-quality building under a long-term lease. During construction, we earned 7.8% on the development spend. However, effective September, having now met the criteria for substantial completion, the project transitioned to yielding 9% on the completed development cost of $55 million. The second property that we finished was a new 115,000 square foot small bay industrial building at 102 Avenue in southwest Calgary. We built this on spec on empty land adjacent to one of our buildings. We completed construction in August. and leasing is tracked ahead of plan. We already have tenants for eight of the nine units, five of which are now firm. We expect the building to begin cash flowing in the fourth quarter and to be fully stabilized in the second quarter of 2026. When stabilized, the building will generate an 11% unlevered return on its development costs of $15 million and contribute an annual net operating income of $1.6 million. We are still looking for a tenant for our 150,000-square-foot Glover new build in Hamilton, which we completed last summer. We own 80% of the property and expect to earn around a 5.9% going in yield on our $20 million share of the development costs. It's been a challenging market in Hamilton lately, but we do have a brand-new, state-of-the-art, 40-foot clear lead-certified product, and we actually – We'll have some pretty good news on that very shortly as things are looking pretty good for us there. But it's a little premature to announce anything, but we'll wait for the next few weeks. We also recently announced two additional development projects, which will get underway in the first half of 2026. We're going to build small bay industrial units on vacant land surrounding our industrial building at Adams Road in Kelowna, B.C., And on our Richmond property, we're adding 52,000 square feet for an estimated cost of $29 million. The cost of being paid in REIT units issued at $10.50 per unit. We'll earn 6% on our costs during the construction period, and we'll earn a contractual 6% yield upon completion. We expect construction to begin in the first half of 2026. The third quarter was another strong quarter of organic growth for Nexus. In total, we completed nearly 150,000 square feet of renewals, an average rent lift of 13%. Year-to-date, we have completed a total of 1.1 million square feet of leasing and realized an average leasing spread of over 60% in expiring and in-place rents. In the quarter, our industrial occupancy grew 1% to 96%. Combined with embedded rent escalation in our leases, our leasing activities drove industrial same property NOI growth of 2.9% in the quarter and on a year-to-date basis. For the full year 2025, we expect to realize same property NOI growth of approximately 3%. In the third quarter, we signed a 15-year lease for our 223,000-square-foot building at Clark Road in London, Ontario, with one of Canada's largest construction service firms. This building was vacated in April after PV Mart entered creditor protection. The new tenant took occupancy August 1st. Their six-month fixturing period, the tenant will invest between $8 to $10 million to update the building and pay net rent of $3 per square foot, roughly equivalent to PV Mart's exit rate. In January 2026, the fixturing period ends and the rent ramps up to $7 a foot with annual dollar rent steps until 2031 and then 2% thereafter. Our ability to quickly backfill this property is a testament to the strength of our operating team and the quality of the portfolio. It's a really good deal for us. This brings a very strong, large tenant, and the reduced rent was due to the fact that we had to put nothing in it. It was an older building, lower clear heights, and the rent ramps up relatively quickly back up to market. So we're really pleased with this deal. In April, PV Mart also vacated a second building at 40 Avenue in Red Deer, Alberta. We're in discussions with a few prospective tenants. However, it is not yet leased. The building is 190,000 square feet, which is very large for that area. So we're marketing it both for lease and for sale in the event we find an owner-operator who's interested. The cross-stock facility at 102 Avenue in Southeast Calgary, the receiver continued to pay rent through to the end of September, which was longer than what we thought. But we have now a tenant, new tenant lined up for December 1. The tenant will pay nominal rent to cover costs during a short fixturing period. And then upon a conclusion of the fixturing period, which will be approximately February of 2026, the rent steps up to $27.83 for the 29,000 square foot building. And this is approximately 45% higher than the outgoing rent of $19 per square foot. Overall, while we saw strong organic growth in the quarter, we expect to realize an even bigger benefit in early 26 and from rent steps at Clark Road and 102 Avenue. We've also made good progress on our 2026 renewals. In total, we have 765,000 square feet coming for renewal in 2026. Roughly 50% of this, or 385,000 square feet, comes due in the first nine months and the remaining 50% in the fourth quarter. As of today, we have tenants lined up for 90% of the January through September expires, and we will soon begin working on the fourth quarter expires. Nexus has a track record of accretive capital recycling through the disposition of legacy buildings and acquiring newer high-quality tenant industrial buildings. During the quarter, we sold a non-core industrial building located in Saint-Laurent, Quebec, for total proceeds of $9.2 million and an implied cap rate of 5.5%. The proceeds were used for debt reduction and for development. After the quarter end, we also closed on the sale of excess land at a remaining retail property, Les Halles d'Anjou, for cash proceeds to us of $8.5 million. We're now marketing our 50% share of the retail mall for sale. The mall is an attractive asset in cash flow as well, so we hope it sells in due time. Summary, we continue to advance our strategy in 2025 as Canada's industrial building partner. We will continue to realize organic growth through embedded rent steps and positive mark-to-market on renewal. We will continue our track record of accretive capital recycling through opportunistic acquisition and development. I'll now turn the call over to Mike to give some more color on our financials.

Thank you, Kelly, and good morning, everyone. Starting with headline earnings in the quarter, net income was $3.4 million. a $49.4 million increase compared to a net loss of $46 million last year. The increase was primarily due to higher fair value adjustments on Class B LP units by $43.3 million compared to a year ago and higher fair value adjustments on derivatives by $20.9 million compared to a year ago, partially offset by lower fair value adjustments on investment properties by $15.4 million and further offset by lower net interest expense by $900,000. Our Q3 net operating income decreased 1.1% or $400,000 year over year to $32.2 million. This was primarily due to a $2 million decrease resulting from property dispositions completed since Q3 2024, partially offset by an $800,000 increase in same property NOI higher straight-line rent adjustments of $500,000 and a $200,000 increase from completed developments and expansions. Normalized AFFO for the period was 14.6 cents per unit compared to 15.7 cents from a year ago, primarily driven by the lower NOI, lower straight-line rent adjustments by half a million dollars, and a $300,000 increase in general and administrative expenses from higher compensation and legal expenses. Net interest expense in the quarter was $13.1 million, a $900,000 decrease from the same period last year. The decrease was primarily due to lower credit facility interest expense of $400,000 resulting from more favorable borrowing rates during the period and lower interest on mortgages by $400,000 resulting from property dispositions. At September 30th, 2025, our NAV per unit was $12.98 and 19 cents per unit decreased from last quarter, primarily due to the issuance of 2.7 million Class B units in the quarter at $10.50 per unit to fund additional development at our property in Richmond, BC. Our weighted average cap rate decreased by two basis points to 5.85% in the quarter. The carrying value of our investment properties decreased by $5.4 million in the quarter, primarily due to the reclassification of our building at 41 Royal Vista Drive, Calgary, to assets held for sale. As Kelly mentioned, this quarter we finished two development projects. The completion of these projects will have accounting impacts on our financial results in the future. At our 70 Dennis Road property in St. Thomas, Ontario, the tenant is now paying rent equal to a 9% yield on the $55 million of development costs, compared to a 7.8% yield during development. As a consequence, we will generate additional cash flow of approximately $220,000 each quarter. In addition, from an accounting perspective, the full quarterly rent of $1.25 million generated by the building now qualifies as net operating income. This means that it will be included in our FFO and AFFO metrics. Up until September, The 7.8% yield on this expansion was capitalized to property under development and did not qualify as net operating income, FFO, or ASFO. So, going forward, our key financial metrics will be higher and paint a more accurate picture of our cash earnings. Since we have now completed both the Dennis Road and 102 Avenue projects, we will no longer be capitalizing interest on these buildings. which in the third quarter amounted to approximately $500,000 for the two of them combined. I will now turn the call back to Kelly.