Nexus Industrial REIT Acquires Two Montreal Properties for $40.1 Million, Targeting 10.4% Stabilized Cap Rate by 2028
Nexus Industrial REIT (TSX:NXR.UN) has secured two industrial properties in the high-demand Montreal market for $40.1 million, a strategic move highlighted by a projected cap rate reset that promises significant future yield. The initial going-in capitalization rate on the long-term leases is 6.6%, but management estimates this will stabilize at a robust 10.4% by 2028, according to the announcement made on December 19, 2025.
Strategic Expansion in Quebec Industrial Market
The newly acquired assets, located in Montreal, Quebec, encompass a combined gross leasable area (GLA) of 277 thousand square feet. This acquisition aligns with Nexus’s stated strategy of expanding its footprint in key Canadian industrial hubs where demand remains strong and vacancy rates are historically low.
The properties are currently subject to long-term leases, providing stable cash flow visibility. These leases are scheduled to expire in November 2032, offering Nexus nearly seven years of contractual income stream from the date of the announcement.
Financial Structure and Embedded Growth
The most compelling financial aspect of the transaction is the substantial difference between the initial yield and the projected stabilized yield. The 6.6% going-in cap rate reflects the immediate return on investment based on current contractual rents relative to the purchase price. The projected reset to 10.4% by 2028 suggests that the existing leases contain significant contractual rent escalations or that the current rents are substantially below prevailing market rates, allowing for a major uplift upon scheduled rent reviews or resets.
The estimated stabilized market rate of 10.4% by 2028 indicates a strong belief in the underlying rental growth potential of the Montreal industrial assets, providing a clear path to enhanced net operating income (NOI) for the REIT.
This structure is particularly attractive in the current economic environment, as it locks in the asset at a competitive price while offering a high future yield, mitigating some of the immediate pressure from higher borrowing costs.
Financing Details
Nexus Industrial REIT funded the $40.1 million acquisition by drawing on its existing credit facilities. Utilizing credit facilities for funding allows the REIT to execute on accretive acquisitions quickly, although the ultimate impact on the balance sheet and leverage ratios will depend on the size of the draw and the REIT's overall debt strategy.
The focus on high-quality industrial assets with embedded rent growth potential is a common strategy among industrial REITs seeking to outperform inflation and deliver superior total returns to unitholders. The significant jump in the expected cap rate structure positions these Montreal properties as key drivers of future earnings growth for NXR.UN.
