The current high interest rates are negatively impacting the real estate market. Many in the sector hope for rate cuts soon to spur activity. Industry experts believe that real estate investment trusts (REITs) will benefit from the easing of monetary policy. While real estate is the second worst-performing sector (-3.8%) thus far in 2024, you can find excellent buying opportunities.
One magnificent investment option in May is Nexus Industrial (TSX: NXR.UN). The REIT is down 9% year to date, although the over-the-top 8.6% dividend yield is hard to ignore. At $7.16 per share, you get the best bang for your buck. Moreover, this TSX dividend stock is for keeps if you desire pension-like monthly dividends.
Return to balance
The global forecast for the REIT industry is encouraging. According to Finextra, recent market reports predict the market size will grow to US$4.2 trillion by 2027. The e-commerce boom increased the demand for industrial and logistics properties. Nexus Industrial belongs in this real estate sub-sector.
The $493.3 million REIT was originally named Nexus Real Estate Investment Trust. However, after a very active year in 2021, management decided to change the name to Nexus Industrial REIT. Its CEO, Kelly Hanczyk, said the goal to become Canada’s next pure-play industrial REIT prompted the change in corporate name.
While this year looks to have a mix of opportunities and challenges, the industrial sector would be the first to return to balance as rental growth normalizes, according to CBRE Research. An economic rebound in the second half of 2024 should stretch to 2025.
Furthermore, expect an economic recovery to reignite industrial leasing momentum and drive future growth in a more balanced market.
Solid start to 2024
Nexus had a solid start to 2024, as evidenced by the financial results in Q1 2024. In the three months ending March 31, 2024, property revenues and net operating income (NOI) increased 11% and 14.8% to $41.6 million and $29.5 million versus Q1 2024, respectively. Net income soared 1,074.9% year over year to $43.7 million.
“This quarter we continued to make progress as a Canada-focused pure-play industrial REIT,” said Hanczyk. At the quarter’s end, the occupancy rate (in-place and committed) was 96%, while the weighted average lease term (WALT) was 6.8 years. The total spending for development projects during the quarter reached $17.8 million.
Regarding the total portfolio, 75.2% of 88 of the 117 income-producing assets are industrial properties. Also, many of Nexus’ industrial leases contain contractual rent increases throughout their terms.
Positive rental fundamentals
The current stock price is within the normal historical range, so the year-to-date loss isn’t a cause for concern. Because of positive rental fundamentals in the industrial sub-sector, Nexus is a lucrative choice for yield-hungry investors.
When its four development projects are complete, management expects an annual stabilized NOI of over $10 million. Expanding to other jurisdictions, particularly in select U.S. markets, is a strong possibility. The monthly dividend payments should be sustainable, considering the low 27.4% payout ratio.
