Imagine collecting a steady stream of passive income that lands in your brokerage account every single month. Then, imagine that income comes from a company whose business is the backbone of the economy, like renting out warehouses and distribution centres that facilitate the flow of goods across Canada. This is the reality offered by Nexus Industrial Real Estate Investment Trust (TSX:NXR.UN), a high-yield gem that has successfully reinvented itself and is now primed for growth. The small $750 million Canadian REIT could be a compelling passive-income source to buy for October.
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Nexus REIT’s strategic transformation unfolds
Over the past year, Nexus executed a dramatic and strategic makeover. It sold off 33 legacy properties, a mix of retail, office, and non-core industrial assets, to emerge as a pure-play industrial REIT. This sharpened focus is a big deal. Industrial properties, especially those in the logistics and warehousing sector, are among the most in-demand real estate assets today.
This pivot has already started to pay dividends. The trust’s core profitability, measured by net operating income (NOI), which is the cash profit from its properties after expenses, grew 1.7% year over year in the second quarter of 2025 despite the smaller portfolio, showcasing the higher quality and superior earning power of its remaining assets.
The REIT’s remaining portfolio of 88 properties comprises 11.7 million square feet in gross leasable area. It has a strong occupancy rate at 94%, with a weighted average lease term of 7.1 years, giving investors clear visibility into future revenue and distributable cash flow.
A safer 8.3% distribution yield
The most critical number for income investors is often the distribution payout ratio. Is the Canadian industrial REIT generating enough cash flow to safely cover the distributions it’s paying out every month? Here, Nexus Industrial REIT recently showed a remarkable improvement.
Its AFFO payout ratio, which measures distributions as a percentage of adjusted funds from operations (AFFO), a key metric measuring the cash flow available to pay distributions, dramatically improved by June to 97.6% from 108.7% a year ago. On a normalized basis, it sits at 100.3%, down from 102.2%. This means the monthly distribution, which yields a juicy 8.3%, is on much firmer ground today. The distribution is now well-covered by the REIT’s distributable operating cash flow, making that high yield appear significantly safer and more sustainable.
The path to further distribution coverage improvement is clear. Going into the third quarter, Nexus Industrial REIT was nearing completion on two major development projects that may add $6.6 million in annual NOI. Furthermore, its in-place rents are a staggering 18.5% below current market rates. As leases expire, the REIT re-leased space at massive spreads averaging 38% higher during the second quarter. Its below-market in-place rents provide a powerful, built-in engine for future revenue and distributable cash flow growth.
Buy a high-yield income asset at a 40% discount
Perhaps the most exciting part of the Nexus Industrial REIT’s story is its strong potential for capital appreciation on top of hefty monthly income.
The trust’s net asset value (NAV) per unit, an estimate of the underlying value of its real estate, was $13.17 at the end of June. Units traded around $7.78 at the time of writing. This implies a discount of roughly 40.9%. For income investors, this could be like having the chance to buy a dollar bill for about 59 cents. The massive gap between Nexus’s unit price and its intrinsic value creates a substantial margin of safety and a clear path for price increases as the REIT continues to execute its winning strategy.
With a weighted average lease term of 7.1 years, Nexus enjoys exceptional revenue visibility, insulating it from near-term volatility. This stability, combined with a 94% occupancy rate, creates a dependable foundation for monthly cash flow.
Most noteworthy, the power of compounding could work wonders for Canadian Tax-Free Savings Account investors reinvesting their distributions. An 8.3% yield has the potential to double your investment in under 8.7 years if the unit price remains stable, according to the Rule of 72. If the unit price rises to narrow that NAV discount, your total returns could be more impressive.
Investor takeaway
Canadian investors on the hunt for an undervalued high-yield REIT to buy in October for passive income may check out Nexus Industrial REIT today. It offers a high yield and better-covered monthly distribution, has a clear strategy for growth, and a significant valuation gap that offers the potential for substantial capital gains.
