Nexus Industrial REIT

Thank you for standing by. This is the conference operator. Welcome to the Nexus Industrial REIT fourth quarter 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 one on your telephone keypad. Should you need assistance during the conference call, you may signal an operator by pressing star, then zero. I would now like to turn the conference over to Kelly Hanzik, Chief Executive Officer. Please go ahead.

I'd like to welcome everyone to the 2025 Fourth Quarter Results Conference Call for Nexus Industrial REIT. Joining me today is Mike Rawls, 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 the 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 and at cedar.com, for cautions regarding forward-looking information and for information about non-GAAP measures. I'm delighted to share that we are entering 2026 with good momentum and well-positioned growth. And despite challenging economic backdrop, 2025 was a very successful year for us. For the full year 2025, we delivered record net operating income of $129 million and an increase of 2.8% compared to last year. We generated record adjusted EBITDA of $120 million and also grew our per unit metrics compared to last year. FFO per unit increased to $0.61 and our NAV grew to $13.22 per unit. Impressively, we grew despite selling our retail portfolio at the beginning of the year, completing our transition to a pure play industrial REIT. This sale raised $47 million and focused our business so that today 99% of our net operating income comes from industrial assets. As a result, we fulfilled our vision to be Canada-focused pure play industrial REIT. and have now moved forward adopting our new purpose to be Canada's industrial building partner with a vision to be the first choice provider of high-quality industrial properties in Canada. During the year, we strengthened our industrial portfolio by completing two transformative developments and two opportunistic acquisitions. At 7 Dennis Road in St. Thomas, we added 325,000 square feet for an existing tenant, We completed the project in September and are now earning a 9% contractual yield on the $55 million of development costs. At 4750-102AV in Calgary, we completed construction in August of 115,000 square feet of small bay industrial units on vacant land that we had adjacent to another building. We have leased five of the nine units and have an additional lease for one more unit under negotiation and offers on two additional units. After a good start, the leasing progress slowed as a prospective large tenant unexpectedly retired. Nevertheless, interest remains high for the property, and I expect that we will have it fully leased by late summer. Overall, the construction costs $15 million and will deliver a healthy 11% cash-in-cash return when stabilized. Turning to the acquisitions, at the end of November, we had a rare opportunity to acquire two high-quality industrial buildings while located in Montreal at a very attractive price. The opportunity arose due to our strong network and our reputation as a reliable partner. A private equity firm that we've worked with in the past was acquiring an operating business and they didn't want the business real estate. They didn't want to have to pay for the real estate. So we worked with them to acquire the two buildings and entered into a sale lease back agreement under a long-term lease agreement. We acquired the buildings for $40 million at a going and cap rate of 6.6%. However, the lease rate resets to market in 2028. which at current rates works out to a stabilized cap rate of approximately 10.4%. The buildings added 283,000 square feet of high-quality real estate to our portfolio at a purchase price of approximately $145 per square foot, where similar real estate typically trades in the range of $215 to $235 per square foot. We had the buildings appraised at year-end and realized a significant mark-to-market lift of approximately $23 million. We also sold several properties during the year. In October, after a complex land zoning and severance process, we sold surplus land at our last remaining retail property for $8.5 million and used the proceeds to deliver. The sale appeared well-timed as the land was zoned for condominium development, a segment of the market which has shown signs of slowing since the sale was completed. Now that we have completed the land sale, we are soft-marketing our 50% share of the retail mall for sale. It's a well-located, high-quality property that cash flows well for us, so we don't feel rushed to force to make a sale. During the year, we opportunistically sold three industrial buildings. In April, we sold a vacant property in Fort St. John above our carrying value of $7 million and used the proceeds to offset the acquisition of land surrounding our building in Kelowna, BC, where we saw a development opportunity. In June, we sold another small building in Edmonton, that we viewed as non-core that had been vacant for nearly a year, to an owner-user for $4.2 million, which was in line with our carrying value. We used the proceeds to reduce debt. In September, we sold a third industrial building in Saint-Laurent, Quebec, to an owner-user for $9.2 million. This exceeded our carrying value and equaled a 5.5 cap rate. After year end, we closed on the sale of a fourth small industrial building. On February 20th, we sold a 35,000 square foot building in Calgary at a 5.7% cap rate to the existing tenant for 8.5 million. We have used the proceeds to pay down debt. We are currently working on three more asset sales. As I mentioned earlier, we are currently soft marketing our 50% share of our last retail property, Les Halles d'Anjou. In Hamilton, we're looking for a buyer or a tenant for our 115,000 square foot new build on Glover Road. We had a buyer lined up for the property, had it under contract at an attractive price. However, the deal fell through at the last minute. We own 80% of the property and it has been a challenging market in Hamilton, but we have a brand new state-of-the-art 40-foot clear lead certified product. Once sold, it will contribute significantly to our FFO per unit as we will immediately reduce the carrying costs and be able to use that equity to pay down debt. In Red Deer, Alberta, we have a firm sale contract for our 190,000-square-foot building at 40th Avenue. This building went vacant when PVMark filed for CCAA in April 2025. We have been marketing the building for lease and for sale, and we now have it under firm contract to close in April for a little over $11 million. We will also look to sell our 80% interest in development land on South Service Road in Hamilton in the near future and be able to utilize the proceeds to further reduce our debt. Turning to our operating performance, we had a strong fourth quarter. In total, we completed nearly 117,000 square feet of renewals and an average rent lift of 2%. Year-to-date, we have completed a total of 1.2 million square feet of leasing and realized an average leasing spread of 60% over expiring and in-place rents. In the fourth quarter, our industrial occupancy held steady at 96%. Combined with embedded rent escalation in our leases, our leasing activities drove industrial same property NOI growth of 2.8% in the quarter and 2.6% for the full year in line with our guidance. Our financial results also improved in the quarter. Normalized FFO grew 3.3% versus Q3 to 18.6 cents per unit, and our normalized FFO rose 3.4% to 15.1 cents per unit. In both cases, the increase was due to strong net operating income, which was up 2.5% or $800,000 compared to last quarter and up 2.7% compared to the prior year. This NOI increase largely resulted from the completion of a development project in St. Thomas. The two Montreal building acquisitions as well as same property NOI growth partially offset by foregone rent from properties we sold since Q4 of last year. At our cross-stock facility at 102 Avenue in Southeast Calgary, the new tenant that we had lined up for December 1 reneged on the deal after fully negotiating a lease agreement. Accordingly, we are marketing a 29,000 square foot building for lease and anticipate renting it quickly. We had a lot of interest in the building and had recent follow-up showing, so we're pretty optimistic. Overall, while we saw strong growth in 2025, and we expect to realize an even bigger benefit in 2026 from our completed development projects, embedded rent steps, and lease up of our vacant space, and the releasing of space at market rents above expiring rents. We are anticipating mid-single-digit at-same-property NOI growth in our industrial portfolio for the year, and we expect our normalized ASFO payout ratio to average below 100%. We have made good progress on our 2026 renewals. In total, we had about 990,000 square feet coming for renewal in 2026. Roughly 415,000 square feet comes due in the first nine months and the remaining 575,000 square feet in the fourth quarter, late in the fourth quarter. As of today, we have committed tenants for approximately 65% of the January through September expiries and we're making good headway on our Q4 renewals. For Q4, 405,000 square feet comprised of three large tenants, and we fully expect them all to renew. And 140,000 square feet are strategic vacancies. Another 140,000 square feet are sort of strategic vacancies where we believe we can increase the rent on renewal. We also recently announced two additional development projects, which will get underway in the first half of 2026. We're going to build up to 1,880,000 square feet of micro-industrial units on a vacant land surrounding our industrial building at Adams Road in Kelowna for a total estimated cost of approximately $47 million. And our Savage Road property in Richmond, B.C. will be adding another 28,000 square feet. Time to the 52,000 square feet that we announced in November for a total of 80,000 square feet. Additional 28,000 square feet expect to cost about $19 million. As I shared previously, the original 52,000 square foot expansion is being paid in REIT units at $10.50 per unit. We'll earn about 6% on the REIT units issued during the construction period, and we will earn a contractual 6% yield upon completion. Expect construction will begin in the first half of 2026. In 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-mark on renewal. and we will continue our track record of accretive capital recycling through opportunistic acquisition and development. I'll now pass the call over to Mike, who will give some more color on our financials.

Thank you, Kelly, and good morning, everyone. Starting with headline earnings in the quarter, net income was $30.6 million, a $19.1 million decrease to last year. The fluctuation was due to a decrease in the fair value adjustment on Class B units by $31 million, and fair value losses on our Montreal office building joint venture of $4.2 million, partially offset by an increase in fair value adjustments of investment properties of $10.6 million, and an increase in fair value adjustments on derivatives of $3.9 million. As Kelly mentioned, our Q4 net operating income increased 2.7%, or $800,000, year over year, to $33 million. This was primarily due to the completion of our St. Thomas development and the Montreal building acquisitions, which combined added $1.5 million in the quarter and an increase in same property NOI of $700,000 and higher straight line rent adjustments of $500,000. These increases were partially offset by $1.4 million of NOI associated with properties that we have sold over the past year. Normalized AFFO for the period was 15.1 cents per unit compared to 15.3 cents a year ago, primarily due to the issuance of 2.8 million Class B units for prepayment of the development in Richmond, B.C. This was partially offset by higher normalized AFFO by $300,000, resulting from higher net operating income. Total general and administrative expenses for the quarter were $2 million. which was $200,000 higher than a year ago, primarily due to higher compensation, legal, and professional fees. Net interest expense in the quarter was $14 million, which was consistent with last year. The carrying value of our investment properties increased by $31.3 million in the quarter, primarily due to the $40.1 million acquisition of the two industrial properties in Montreal, $18.7 million of fair value gains, and $3.7 million of development expenditures, partially offset by $34.8 million of investment properties that were reclassified to assets held for sale. At December 31st, our NAV per unit was $13.22, a $0.03 per unit increase from last quarter. Our weighted average cap rate increased by three basis points to 5.88% in the quarter. compared to 5.85% at September 30th. I'll now turn the call back to Kelly.