TORONTO and MONTREAL, Aug. 13, 2020 (GLOBE NEWSWIRE) -- Nexus Real Estate Investment Trust (the "REIT") (TSXV: NXR.UN) announced today its results for the quarter ended June 30, 2020.
Highlights
Q2 2020 net income of $6,883,796 was up $2,842,059 compared to $4,041,737 for Q2 2019.
Q2 2020 net operating income of $9,804,797 was up $59,338 or 0.6% compared to $9,745,459 for Q2 2019.
Q2 2020 normalized AFFO per unit of $0.049 decreased by 0.7% as compared to Q2 2019 normalized AFFO per unit of $0.050; normalized AFFO payout ratio for Q2 2020 of 79.8% is down from 80.5% for Q2 2019.
Q2 2020 normalized AFFO per unit of $0.049 remained stable as compared to Q1 2020 normalized AFFO per unit of $0.049; normalized AFFO payout ratio is down from 81.3% to 79.8%.
Conservative debt to total assets ratio of 48.0%.
Two potential industrial asset acquisitions under due diligence; one in Alberta and one in Ontario, with the acquisitions expected to be funded with a combination of cash on hand, proceeds of mortgage financing and 2,750,000 class B LP units of a subsidiary limited partnership of the REIT. The units will be issued at a contractual price of $2.00 per unit and exchangeable for REIT units on a 1 for 1 basis.
The REIT is resuming efforts to graduate to the TSX with a 4 to 1 unit consolidation expected at or around the time of graduation.
Management of the REIT will host a conference call on Friday August 14th at 1PM EST to review results and operations.
“Nexus has successfully completed another quarter with strong financial results. Our diversified portfolio has proven resilient, allowing us to continue to provide our unitholders with the stable distributions they expect, and we continue to work closely with our tenants to help navigate through these difficult times.” commented Kelly Hanczyk, the REIT’s Chief Executive Officer. “We have always carefully managed our balance sheet and that has allowed us to maintain solid financial metrics in the midst of the COVID-19 pandemic, with an AFFO payout ratio under 80% and debt to gross book value at a conservative 48%. With businesses reopening across the country, and the economy beginning the process of recovery, we are once again exploring acquisitions and are moving forward with our planned graduation to the TSX. On the acquisition front, we are in due diligence on two industrial asset purchases totaling approximately $42 million. The acquisition of these properties would add additional solid covenant tenants to the REIT’s portfolio and increase the percentage of our industrial portfolio, which has shown to be a stable asset class.”
Summary of Results
Included in the tables that follow and elsewhere in this news release are non-IFRS measures that should not be construed as an alternative to net income / loss, cash from operating activities or other measures of financial performance calculated in accordance with IFRS and may not be comparable to similar measures as reported by other issuers. Readers are encouraged to refer to the REIT’s MD&A for further discussion of the non-IFRS measures presented.
Three months ended June 30,
Year ended June 30,
2020
2019
2020
2019
$
$
$
$
Financial Results
Property revenue
15,040,989
15,003,425
30,633,748
29,389,863
Net operating income
9,804,797
9,745,459
19,578,432
18,682,280
Net income
6,883,796
4,041,737
20,554,796
8,642,714
Three months ended June 30,
Year ended June 30,
2020
2019
2020
2019
$
$
$
$
Financial highlights
Funds from operations (FFO) (1)
7,664,119
5,433,978
13,947,751
13,521,065
Normalized FFO (1) (4)
7,162,290
6,639,371
14,055,852
12,832,903
Adjusted funds from operations (AFFO) (1)
6,996,139
4,740,759
12,586,398
12,151,163
Normalized AFFO (1) (4)
6,494,310
5,946,152
12,694,499
11,463,001
Distributions declared (2)
5,179,529
4,789,115
10,221,314
9,290,370
Weighted average units outstanding – basic (3)
131,745,744
119,729,985
128,744,670
116,150,950
Weighted average units outstanding – diluted (3)
131,833,996
119,798,205
128,832,921
116,190,308
Distributions per unit, basic and diluted (2) (3)
0.039
0.040
0.079
0.080
FFO per unit, basic (1) (3)
0.058
0.045
0.108
0.116
Normalized FFO per unit, basic (1) (3) (4)
0.054
0.055
0.109
0.110
AFFO per unit, basic (1) (3)
0.053
0.040
0.098
0.105
Normalized AFFO per unit, basic (1) (3) (4)
0.049
0.050
0.099
0.099
Normalized AFFO payout ratio, basic (1) (2) (4)
79.8%
80.5%
80.5%
81.0%
Debt to total assets ratio
48.0%
51.7%
48.0%
51.7%
(1)
Non-IFRS Measure
(2)
Includes distributions payable to holders of Class B LP Units which are accounted for as interest expense in the consolidated financial statements.
(3)
Weighted average number of units includes the Class B LP Units.
(4)
Normalized FFO and Normalized AFFO include a vendor rent obligation amount related to the REIT’s Richmond, BC property which is payable from the vendor of the property until the buildout of the property is complete and all tenants are occupying and paying rent. The vendor rent obligation amount is not included in NOI for IFRS accounting purposes. Normalized FFO and Normalized AFFO exclude amounts recorded in other income related to estimated future vendor rent obligation amounts. Normalized FFO and Normalized AFFO for the three and six-month periods ended June 30, 2019 include adjustments for debt repayment fees of $578,399 included in interest expense in those periods.
COVID-19 Update
Economic reopening for the REIT’s Quebec retail tenants began in May and in late June, gyms, restaurants and bars were allowed to reopen with physical distancing and other precautions in place. The REIT is participating in the Canada Emergency Commercial Rent Assistance (“CECRA”) program for most of its eligible tenants. Under the program, the REIT must enter into rent reduction agreements with tenants for the months of April, May and June 2020 to reduce their gross rents by at least 75% for those three months, with CECRA covering 50% of the gross rents for the period, the tenant remaining responsible for 25% of the gross rents, and the landlord foregoing 25% of gross rents. On June 8, 2020, the Quebec government announced a program that would reduce the amount the landlord was required to forego with respect to tenants of properties located in Quebec that are included in the CECRA program. An update on the Quebec program was announced on July 28, 2020. The majority of the REIT’s tenants that will participate in the CECRA program are located in Quebec, and for those tenants the REIT expects that it will forgo 12.5% of gross rents. The CECRA program applies to those businesses that have been hardest hit – those that experienced revenue reductions of 70% or more for the months of April to June 2020. Deferrals have been offered to those that do not qualify for CECRA and have demonstrated a financial need for support, with rent abatement only being extended in extremely limited cases to retail or office tenants.
Total rents foregone under the CECRA program for the months of April through June 2020 are estimated at $150,000. The REIT was an indirect beneficiary of the Canada Emergency Wage Subsidy program, and incurred costs in implementing social distancing and other health and safety programs. The net impact of COVID-19 in the quarter was to reduce the REIT’s NOI by approximately $175,000. Partially offsetting, travel and other general and administrative costs decreased as a result of COVID-19 travel and commercial operation restrictions.
Revenues and Results from Operations
Net operating income for the second quarter of $9,804,797 was $59,338 higher than net operating income of $9,745,459 for the same quarter of 2019. Properties acquired in 2020 contributed approximately $335,000 in incremental net operating income in Q2 2020 as compared to Q2 2019 and annual CPI lease adjustments increased Q2 2020 net operating income by approximately $57,000 as compared to Q2 2019. New tenant occupancies at the Richmond, BC property increased net operating income by approximately $110,000 compared to Q2 2019. Until these tenants occupied their space and began paying rent, the REIT received vendor rent obligation payments that were recorded as other income. Partially offsetting was the impact of COVID-19, which reduced Q2 2020 net operating income by approximately $175,000, and the early termination of a tenant at the REIT’s Richmond, BC property, which reduced NOI by $195,000 as compared to Q2 2019. The tenancy was early terminated to allow the REIT to proceed with a value-add project for this property. Occupancy at quarter end remained strong at 94% along with a 4.7-year average remaining lease term.
General and administrative expense of $830,590 for the quarter was down $51,601 as compared to Q2 2019 and down $162,072 as compared to Q1 2020 primarily due to timing of expenses, and due to lower travel and related costs as a result of COVID-19.
Net income for Q2 2020 includes positive fair value adjustment totaling $298,248, with $1,854,495 of positive fair value adjustments of the carrying amount of Class B LP Units being partially offset by negative fair value adjustments of investment properties and interest rate swaps in the amounts of $871,211 and $685,151, respectively. Fair value adjustments taken on the REIT’s portfolio resulting from changes to assumptions driven by COVID-19 were partially offset by positive fair value adjustments of industrial properties acquired in Q2 2019 which were revalued from their purchase price to their appraised values.
Other income of $1,094,144 in the quarter relates to the accrual of additional vendor rent obligation payments expected to be received from the vendor of the REIT’s Richmond, BC property through to the completion of build out and tenant occupancy, the target dates for which were revised due to COVID-19.
Distributions per unit decreased to $0.039 for the quarter as a result of units issued but held by the REIT for future release. While the units are held, they do not earn distributions. This reduced the REIT’s AFFO payout ratio slightly in the quarter.
Earnings Call
Management of the REIT will host a conference call at 1:00 PM Eastern Standard Time on Friday August 14, 2020 to review the financial results and operations. To participate in the conference call, please dial 416-915-3239 or 1-800-319-4610 (toll free in Canada and the US) at least five minutes prior to the start time and ask to join the Nexus REIT conference call.
A recording of the conference call will be available until September 14, 2020. To access the recording, please dial 604-674-8052 or 1-855-669-9658 (toll free in Canada and the US) and enter access code 5006.
Amendment to the REIT’s Distribution Reinvestment Plan
The REIT has amended its Distribution Reinvestment Plan (“DRIP”) to increase the number of units available for issuance under the DRIP from 1,975,000 to 4,975,000. The number of units available for issuance may be further increased at any time subject to approval of the REIT’s board of trustees and the stock exchange upon which the units trade. Other inconsequential changes of a housekeeping nature were also made to update the document.
The REIT’s DRIP entitles eligible unitholders to elect to receive all, or a portion of the cash distributions of the REIT reinvested in units of the REIT. Eligible unitholders who so elect will receive a bonus distribution of units equal to 4% of each distribution that was reinvested by them under the DRIP.
Insider participation in the DRIP is 1.5% of total participation for the July distribution payable on August 14, 2020.
A total of 2,609,223 units have been issued under the DRIP since its inception in February 2014.
A copy of the DRIP can be found on the Investor Relations page of the REIT’s website: www.nexusreit.com.
About Nexus REIT
Nexus is a growth oriented real estate investment trust focused on increasing unitholder value through the acquisition, ownership and management of industrial, office and retail properties located in primary and secondary markets in North America. The REIT currently owns a portfolio of 72 properties comprising approximately 4.0 million square feet of rentable area. The REIT has approximately 107,925,000 units issued and outstanding. Additionally, there are Class B LP units of subsidiary limited partnerships of Nexus REIT issued and outstanding, which are convertible into approximately 24,107,000 REIT units.
Forward Looking Statements
Certain statements contained in this news release constitute forward-looking statements which reflect the REIT’s current expectations and projections about future results. Often, but not always, forward-looking statements can be identified by the use of words such as “plans”, “expects” or “does not expect”, “is expected”, “estimates”, “intends”, “anticipates” or “does not anticipate”, or “believes”, or variations of such words and phrases or state that certain actions, events or results “may”, “could”, “would”, “might” or “will” be taken, occur or be achieved. Forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the REIT to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. Actual results and developments are likely to differ, and may differ materially, from those expressed or implied by the forward-looking statements contained in this news release. Such forward-looking statements are based on a number of assumptions that may prove to be incorrect.
While the REIT anticipates that subsequent events and developments may cause its views to change, the REIT specifically disclaims any obligation to update these forward-looking statements except as required by applicable law. These forward-looking statements should not be relied upon as representing the REIT’s views as of any date subsequent to the date of this news release. There can be no assurance that forward-looking statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. Accordingly, readers should not place undue reliance on forward-looking statements. The factors identified above are not intended to represent a complete list of the factors that could affect the REIT. Neither TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.
