A Canadian REIT For Lovers of Yield

Nexus Real Estate Investment Trust (TSXV:NXR.UN) is currently yielding more than 10% and nearly half its portfolio is industrial real estate

Capital Ideas Media | October 6, 2020 | SmallCapPower: Under most circumstances, a more than 10% yield for a security is a red flag for investors of a pending dividend cut. Yet Desjardins Securities analyst Kyle Stanley has a “Buy” rating on units of Nexus Real Estate Investment Trust (TSXV:NXR.UN) with a $1.80 target price, representing potential upside of 19% from the current market price.

(Originally published on Capital Ideas Media on August 11, 2020)

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Nexus REIT is focused on the acquisition, ownership and management of industrial, office and retail properties located in primary and secondary markets in North America, with a portfolio of 72 properties comprising about 4.0 million square feet of rentable area. NXR.UN has a current dividend yield of 10.1%. 

Nexus’ unit price has yet to recover from the March COVID stock-market meltdown, due largely to its exposure to office and retail real estate in Canada.

Its retail clients, though, include providers of essential services such as Shoppers Drug Mart, Dollarama, Metro, National Bank, and Canadian Tire, while also renting office space to high-profile clients including Sunlife, Xerox, and IBM.

Nearly half of its property portfolio is industrial real estate. 

Nexus REIT’s AFFO (Adjusted Funds From Operations) payout ratio has fallen from 99% in 2014 to about 81% today. During Q1 2020, the Company had a debt to total assets ratio of 47.6%.

“NXR stacks up well relative to its diversified peer group as it (1) has the highest exposure to industrial assets at 48 per cent of base rent; (2) offers the highest cash distribution yield; (3) has the lowest leverage at 7.9 times, 1.5 times lower than the peer average; and (4) is trading at a significant 35-per-cent discount to NAV notwithstanding the potential 8-per-cent NAV upside pending the successful redevelopment of its sports facility in Richmond,” the Desjardins Securities analyst said.

Nexus Real Estate Investment Trust also announced recently that it plans to make a formal application by the end of the third quarter to up-list to the TSX.

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