LXP Industrial Trust (then Lexington Realty Trust) — Q3 2021 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2021. The REIT owned interests in approximately 140 consolidated properties across 28 states, focused primarily on single-tenant industrial real estate.
Financial performance and condition
Amounts below are in millions, except per-share data.
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Gross revenue | $83.4 | $84.5 | $257.5 | $247.1 |
| Net income | $7.1 | $43.6 | $122.3 | $81.2 |
| Net income attributable to common shareholders | $5.0 | $40.3 | $115.5 | $74.1 |
| Diluted earnings per common share | $0.02 | $0.15 | $0.41 | $0.28 |
| Operating cash flow | Not separately stated | Not separately stated | $167.4 | $152.5 |
- Q3 rental revenue was $82.4 million, down from $83.6 million; nine-month rental revenue was $254.6 million, up from $243.4 million. Nine-month rental revenue included $14.1 million of lease termination income, principally from a tenant terminating a Durham, New Hampshire lease.
- Q3 net income was reduced by a $13.2 million debt-satisfaction loss, mainly from redeeming 2023 notes. Nine-month property sale gains were $104.8 million versus $41.9 million in 2020; these gains and debt-extinguishment items materially affected reported earnings.
- Nine-month same-store NOI, a non-GAAP measure, increased 0.7% to $165.9 million. Same-store leased area was 98.7%, compared with 99.8% a year earlier.
- Nine-month FFO per diluted share/unit was $0.55 versus $0.63; adjusted company FFO per diluted share/unit was $0.59 versus $0.57. These are non-GAAP measures and are not substitutes for GAAP earnings or operating cash flow.
- Nine-month investing cash use was $344.1 million and financing cash provided was $147.7 million. Cash and cash equivalents were $150.1 million at September 30, down from $178.8 million at year-end 2020.
- Total debt carrying value was $1.529 billion, versus $1.341 billion at December 31, 2020. The company had no revolving-facility borrowings and reported $600 million available, subject to covenants; it was compliant with its financial covenants.
- Total assets were $3.758 billion and total equity was $2.068 billion. The quarterly common dividend declared was $0.1075 per share, up from $0.105 a year earlier.
Material changes and transactions
- Issued $400 million of 2.375% senior notes due 2031 and used part of the proceeds to redeem $188.8 million of 4.25% notes due 2023. The redemption generated a $12.9 million debt-satisfaction loss.
- Acquired 15 warehouse/distribution assets or completed projects in the first nine months for approximately $410.6 million. The company also invested $119.9 million in development during the period.
- At quarter-end, six consolidated development projects had an estimated total cost of $484.0 million; remaining funding to substantially complete them was approximately $291.5 million, excluding joint-venture partners’ share.
- Disposed of ten properties for gross proceeds of $218.8 million in the first nine months. Four properties were classified as held for sale at quarter-end.
- Subsequent to quarter-end, the company acquired three industrial properties for approximately $76.4 million and disposed of two properties for approximately $25.4 million. It also signed a seven-year lease for all 907,675 square feet at the Fairburn development.
- Third-quarter leasing activity covered 2.6 million square feet. Average fixed rent on extended leases was $5.07 per square foot, compared with $4.78 before extension.
Outlook, risks, and contingencies
- The filing provides no specific earnings or FFO guidance. Management said operating cash flow, cash on hand, the revolver, property-sale proceeds, equity issuance and debt financing were expected to support operating costs, debt service, dividends and development funding.
- Management reported that supply-chain disruption had delayed and increased the cost of building materials, but did not then expect a material effect on financial condition; the longer-term COVID-19 impact remained uncertain. Tenant relief, defaults, vacancies, higher interest rates and capital-market access were identified as risks.
- The company reported $395.2 million of guarantees related to non-recourse debt of unconsolidated entities; management considered payments under the guarantees remote. It also had development and tenant-related funding commitments, including the project funding described above.
- Ordinary-course legal proceedings were not expected by management to have a material adverse effect. The filing reported no material change in risk factors from the prior annual report.
- Interest-rate exposure included $129.1 million of variable-rate debt not covered by swaps. Management estimated that a 100-basis-point rate increase would raise nine-month interest expense by $1.3 million. The $300 million term loan was hedged to a current fixed rate of 2.732%.
Important facts for investors to verify
- How much of the reported nine-month earnings growth depended on property-sale gains and termination income, and what recurring earnings or cash-flow trends remain after those items?
- Whether development projects meet cost, schedule and leasing assumptions, including the remaining funding requirement and the newly signed Fairburn lease.
- Tenant collections, occupancy and same-store NOI trends, particularly given leased-area occupancy of 98.7% versus 99.8% a year earlier and ongoing COVID-related uncertainty.
- Debt maturities, refinancing terms, covenant headroom and the eventual settlement and dilution impact of outstanding forward share-sale contracts.
- The potential exposure under the $395.2 million of guarantees and the timing and amount of other development and tenant commitments.