Business context and reporting period
LXP Industrial Trust is a REIT focused primarily on single-tenant industrial properties. This unaudited Form 10-Q covers the three months ended March 31, 2023, compared with the same period in 2022. At quarter-end, LXP had interests in approximately 116 consolidated properties across 20 states, totaling 54.2 million square feet and approximately 99.5% leased.
Key financial results
Amounts are in millions of dollars except per-share data and percentages.
| Metric | Q1 2023 | Q1 2022 | Change |
|---|---|---|---|
| Total gross revenues | $85.1 | $80.3 | +6.0% |
| Net income | $11.3 | $10.9 | +$0.4 |
| Net income attributable to common shareholders | $9.5 | $9.0 | +$0.5 |
| GAAP diluted earnings per common share | $0.03 | $0.03 | Unchanged |
| Operating cash flow | $37.5 | $42.1 | -$4.5 |
| Same-store NOI | $59.8 | $57.0 | +5.1% |
| FFO available to all equityholders and unitholders, diluted | $50.2 | $46.8 | +$3.3 |
| Adjusted Company FFO, diluted | $50.3 | $48.1 | +$2.1 |
Revenue growth primarily reflected acquisitions and properties placed into service, partly offset by property sales. Same-store NOI growth was primarily driven by higher cash base rents; same-store leased area was 99.8% in both periods. Adjusted FFO per share was $0.17 versus $0.16. The filing does not provide a single overall operating-margin figure.
Financial position, cash flow and capital
- At March 31, 2023, total assets were $4.005 billion, total liabilities $1.644 billion and total equity $2.361 billion. Cash and cash equivalents were $42.9 million.
- Debt carrying value was approximately $1.486 billion: $69.3 million of mortgages and notes, $299.1 million term loan, $989.6 million senior notes and $127.7 million trust preferred securities. Senior notes include $198.9 million due June 2024. The term loan is swapped to a fixed rate of 2.722%; trust preferred securities bore 6.502% at quarter-end and were scheduled to transition from LIBOR to SOFR after June 30, 2023.
- The $600 million revolving facility had no borrowings at quarter-end and was fully available, subject to covenant compliance. LXP reported compliance with corporate debt covenants. Subsequent to quarter-end, it borrowed $20 million net on the facility.
- Approximately 91.4% of consolidated principal debt was fixed-rate; $129.1 million was variable-rate and not swapped. Management estimated that a 100-basis-point increase in rates would have raised quarterly interest expense by approximately $0.5 million.
- Investing activities used $5.5 million, versus $152.5 million in Q1 2022, which included acquisitions and higher development spending. Financing activities used $43.5 million, mainly for dividends and debt service. The quarterly common dividend was $0.125 per share, up from $0.12.
Material changes, outlook and risks
- Property-sale gains rose to $7.9 million from $0.3 million; LXP also recorded a $3.5 million impairment charge related to a potential property sale. These items helped support reported earnings.
- Equity earnings from non-consolidated entities declined to $3.6 million from $11.3 million, primarily because 2022 included gains from NNN JV property sales. Q1 2023 included a $4.8 million share of gain from the BSH Lessee L.P. asset sale.
- Management reported that increased financing costs slowed transaction activity and development starts. Six consolidated development projects had estimated total costs of $408.3 million; LXP expected to spend approximately $76 million, excluding partners’ share, during the remainder of 2023 to substantially complete them. Management cautioned that development risks, including supply-chain issues, could affect estimates.
- Management expects operating cash flow, cash on hand, revolver capacity, property-sale proceeds and other financing alternatives to support operations, debt service, dividends and development obligations. It cautioned that tenant defaults amid economic conditions could reduce near-term cash flow and that capital-market volatility could limit equity access. No quantitative earnings or FFO guidance is provided in the supplied filing text.
- LXP had guaranteed obligations associated with $503.9 million of non-recourse debt at non-consolidated entities; management considered payments under these guarantees remote. Management said ordinary-course legal proceedings were not expected, in aggregate, to materially adversely affect the company. No material changes to previously disclosed risk factors were reported.
- Management stated that disclosure controls were effective as of March 31, 2023, with no materially affecting changes in internal control during the quarter.
Important facts for investors to verify
- Whether the expected $76 million of remaining 2023 development spending, leasing and project completion timing remain on track.
- Leasing and stabilization of recently completed projects, including the post-quarter leasing of The Cubes at Etna East, and the timing of occupancy and rent commencement at other developments.
- Debt refinancing plans for the $198.9 million senior notes due in June 2024, interest-rate exposure and the effect of the trust preferred securities’ benchmark transition.
- Whether same-store rent growth and high portfolio occupancy offset property dispositions, tenant credit risk and economic or financing pressures.
- The potential cash-flow and balance-sheet effects of the $503.9 million of non-recourse debt guarantees and the property subject to the impairment charge and potential sale.