Nexus Real Estate Investment Trust (($TSE:NXR.UN)) has held its Q2 earnings call. Read on for the main highlights of the call.
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The recent earnings call for Nexus Real Estate Investment Trust reflected a generally positive sentiment, highlighting strong leasing activity, progress in development projects, and financial improvements. However, this optimism was tempered by a net loss, leasing challenges, and increased expenses, indicating a mixed but forward-looking outlook for the company.
Net Operating Income Increase
Net operating income for Nexus Real Estate Investment Trust saw a modest increase of 1.7%, reaching $32.2 million compared to the previous year. This growth was achieved despite the sale of 33 properties over the past 12 months, showcasing the company’s resilience and effective management strategies.
Strong Leasing Activity
The company completed nearly 400,000 square feet of new leases and renewals, resulting in a significant rent lift of 38% on renewals. This strong leasing activity underscores the demand for Nexus’s properties and the company’s ability to capitalize on market opportunities.
Successful Lease Backfill
Nexus successfully signed a 15-year lease with a large construction services firm for a 223,000 square foot building in London, Ontario. This lease was secured shortly after the building was vacated, demonstrating the company’s agility in managing its property portfolio.
Development Project Progress
The company made significant progress in its development projects, with construction advancing on two properties. One project is expected to deliver an impressive 11% unlevered return on investment, highlighting Nexus’s strategic focus on high-yield developments.
Financial Metrics Improvement
Nexus reported improvements in key financial metrics, with normalized funds from operations (FFO) increasing by 6% to $0.188 per unit and normalized adjusted funds from operations (AFFO) rising by 7% to $0.159 per unit compared to the previous year.
Credit Facility Upsize
The company upsized its existing syndicated committed credit facility by $160 million, bringing the total to $785 million and extending its expiry. This move provides Nexus with increased financial flexibility to pursue strategic opportunities.
Net Loss Incurred
Despite positive developments, Nexus reported a net loss of $7.6 million, a significant decrease from a net income of $43.5 million last year. This was primarily due to lower fair value adjustments, reflecting challenges in the current market environment.
Challenges in Leasing Out Peavey Mart Building
The Peavey Mart building in Red Deer, Alberta, remains unleased, highlighting the difficulties in finding a suitable tenant for the large space. This challenge underscores the complexities of the leasing market in certain regions.
Market Slowdown in Hamilton
The leasing market in Hamilton has experienced a slowdown, impacting Nexus’s ability to lease a new 115,000 square foot building completed last summer. This slowdown reflects broader market trends affecting the region.
Increased General and Administrative Expenses
Nexus reported an increase in general and administrative expenses for the quarter, totaling $2.2 million, which is $300,000 higher than the previous year. This increase was primarily due to higher compensation expenses.
Forward-Looking Guidance
Looking ahead, Nexus Real Estate Investment Trust remains focused on its strategy as a Canada-focused industrial REIT. The company anticipates continued growth driven by strong leasing activity, significant developments, and property acquisitions. Despite the net loss, Nexus is committed to enhancing its financial performance and expanding its portfolio.
In summary, the earnings call for Nexus Real Estate Investment Trust presented a mixed yet optimistic outlook. While the company faces challenges such as a net loss and leasing difficulties, its strong leasing activity, development progress, and financial improvements provide a solid foundation for future growth. Investors should keep an eye on Nexus’s strategic initiatives and market conditions as the company navigates the evolving real estate landscape.