LXP Industrial Trust (Lexington Realty Trust) — Q2 2020 Form 10-Q
Reporting period: Three and six months ended June 30, 2020. Unless stated otherwise, financial amounts below are in millions of dollars. The filing identifies the registrant as Lexington Realty Trust.
Business context
The REIT owned interests in approximately 140 consolidated properties across 29 states, totaling about 56.6 million square feet and 97.3% leased. Its strategy emphasized acquiring leased industrial properties and selling non-core assets. Industrial properties represented 84.5% of gross book value, excluding held-for-sale assets.
Financial performance and liquidity
| Metric | Q2 2020 | Q2 2019 | Six months 2020 | Six months 2019 |
|---|---|---|---|---|
| Gross revenue | $81.8 | $80.1 | $162.6 | $161.4 |
| Net income attributable to common shareholders | $17.3 | $21.7 | $33.8 | $48.1 |
| Diluted EPS | $0.06 | $0.09 | $0.13 | $0.20 |
| Diluted FFO per share/unit | $0.19 | $0.20 | $0.38 | $0.40 |
- Six-month operating cash flow was $93.5, compared with $88.6 in 2019. Investing used $316.2, mainly for acquisitions; financing provided $177.1, including equity issuance and net revolving-credit borrowings. Cash, cash equivalents and restricted cash totaled $83.8 at period-end, including $67.0 of unrestricted cash.
- Same-store NOI fell 0.6% to $108.6 for the first six months, mainly due to higher unreimbursed operating costs related to vacancies and property expense responsibilities.
- Debt carrying value was $1.336 billion, versus $1.312 billion at year-end 2019. The $600 million revolving facility had $40 million drawn and $560 million available, subject to covenant compliance. The company reported compliance with corporate-level debt covenants.
- Two non-recourse mortgages on vacant office properties were in default, with $50.5 million aggregate principal outstanding. The company cited $50.5 million of property-specific mortgage balloon debt due in 2020, all relating to mortgages in default.
- Quarterly common dividend declared was $0.105 per share, versus $0.1025 in Q2 2019.
Material changes and transactions
- Revenue increased modestly year over year, reflecting acquisitions, partly offset by property dispositions. Common shareholder earnings declined as lower gains on property sales and higher depreciation outweighed lower interest expense.
- During the first half, the company acquired ten industrial properties for approximately $359.7 million and disposed of five properties and a land parcel for approximately $74.1 million. It also invested in two industrial development projects with estimated combined project costs of $74.1 million and expected completion in Q1 2021.
- The company issued 17.25 million common shares in an underwritten offering at $9.60 per share, generating approximately $164 million net, and issued about 5.3 million shares through its ATM program for approximately $54 million net. Common shares outstanding increased to 276.3 million at June 30, 2020 from 254.8 million at year-end 2019.
- Six-month gains on property sales were $21.0 million, down from $36.2 million. A South Carolina office property was conveyed to its lender in satisfaction of debt, producing a $1.4 million debt-satisfaction gain.
Outlook, risks and unusual items
- Management said it could not estimate COVID-19’s long-term financial impact. It expected limited rent-relief requests and did not believe those received would materially affect rental revenue, but warned that tenant relief or defaults could reduce near-term operating cash flow. Acquisition and disposition activity was recovering from April’s reduced levels, while financing opportunities for property buyers remained limited.
- COVID-19-related tenant credit issues included $1.4 million of deferred rent receivables written off or reserved in the first half. A tenant occupying a Shreveport distribution facility filed for bankruptcy; the company reserved $1.243 million and recognized rent on a cash basis, while reporting that post-petition rent due through June 30 had been received.
- Interest-rate swap liabilities increased to $20.7 million from $1.9 million at year-end, contributing to an $18.8 million six-month other comprehensive loss. The company estimated a further $4.8 million would be reclassified to interest expense over the following 12 months if the swaps remained outstanding.
- After quarter-end, the company sold three properties for approximately $67 million gross and sold 471,576 shares under its ATM program for $4.9 million gross.
- No full-year earnings or FFO guidance is provided in the filing. Management stated that future earnings growth depends substantially on acquisitions and identified economic conditions, interest rates, tenant defaults, and pandemic-related constraints as risks.
Important facts for investors to verify
- Progress and resolution terms for the two defaulted mortgages and the vacant collateral properties.
- Tenant rent collection, bankruptcy recovery, any further rent relief, and changes in occupancy amid COVID-19 impacts.
- Liquidity and covenant headroom after acquisitions, property sales, debt maturities, and further equity issuance.
- Whether development projects complete on schedule and within estimated cost, and whether industrial acquisitions deliver expected cash flow.
- Share dilution and dividend coverage, including FFO trends and recurring cash available after capital and leasing costs.