LXP Industrial Trust (filing registrant: Lexington Realty Trust) — Q1 2020 Form 10-Q
Reporting period: Three months ended March 31, 2020. Dollar amounts below are in millions unless stated otherwise. The filing describes a diversified, primarily net-leased single-tenant portfolio: approximately 135 consolidated properties in 30 states, with 55.0 million square feet and 97.2% occupancy. Industrial properties represented 83.2% of gross book value, excluding assets held for sale.
Financial performance and position
| Metric | Q1 2020 | Q1 2019 / prior date |
|---|---|---|
| Total revenue | $80.8 | $81.2 |
| Net income | $18.4 | $28.3 |
| Net income attributable to common shareholders | $16.5; $0.07 basic and $0.06 diluted per share | $26.4; $0.11 basic and diluted per share |
| Operating cash flow | $45.7 | $47.6 |
| Same-store NOI (non-GAAP) | $56.5 | $56.7; down 0.2% year over year |
| Adjusted Company FFO, diluted (non-GAAP) | $49.3; $0.19 per share/unit | $47.2; $0.20 per share/unit |
| Cash and restricted cash | $90.1 | $129.3 at December 31, 2019 |
| Debt carrying value | $1,429.8 | $1,311.98 at December 31, 2019 |
Net income as a percentage of revenue was approximately 22.8%, compared with 34.8% in Q1 2019; this comparison is affected by property-sale gains and other items. The filing does not present a conventional operating margin. Total equity was $1,702.7 million at quarter-end, versus $1,724.7 million at year-end 2019. The company declared a quarterly common dividend of $0.105 per share, up from $0.1025 in Q1 2019.
Material changes and notable items
- Revenue declined $0.4 million, primarily because property sales reduced rental revenue by $1.2 million; acquisitions partly offset the decline. Other revenue rose $0.8 million, including a property-management incentive fee.
- Common-shareholder net income fell $9.9 million. Property-sale gains were $9.8 million versus $21.0 million a year earlier, more than offsetting lower interest expense and the absence of impairment charges.
- Adjusted Company FFO increased to $49.3 million, while diluted FFO per share/unit and adjusted FFO per share/unit were each $0.19, compared with $0.20 a year earlier. Same-store NOI was nearly flat.
- The company acquired four industrial properties for $195.5 million and disposed of interests in properties for gross proceeds of $29.6 million, compared with $79.3 million of dispositions in Q1 2019. Investing cash flow was negative $183.2 million, principally reflecting acquisitions.
- Financing cash flow was positive $98.3 million, including $130.0 million of revolving-credit borrowings and $17.3 million of net ATM share proceeds; dividends and repurchases used cash. The company repurchased 1.33 million shares at an average $8.28.
- A Charleston office property was conveyed to its lender in foreclosure; the company recorded a $1.4 million debt-satisfaction gain. Two other non-recourse mortgages on vacant office properties were in default, with aggregate principal of $50.5 million.
- Interest-rate swap liabilities rose to $18.9 million from $1.9 million at year-end, with a $17.0 million unrealized loss recorded in other comprehensive loss. The filing estimates $4.2 million of additional swap losses may be reclassified to interest expense over the following 12 months if the swaps remain outstanding.
- The company wrote off $0.6 million and reserved $1.2 million of deferred rent receivables for tenants with collection concerns. No real estate impairment was recorded in Q1 2020.
Liquidity, debt, outlook and risks
- At March 31, cash and cash equivalents were $83.5 million, and the $600 million revolving facility had $130.0 million drawn and $470.0 million available, subject to covenant compliance. The company reported compliance with corporate-level financial covenants.
- Debt includes $500 million of senior notes due in 2023 and 2024, a $300 million term loan due in 2025, and trust preferred securities due in 2037. Mortgages and notes payable had rates of 3.5%–6.5%; their weighted-average rate was 4.5%. The company reported $50.5 million of property-specific mortgage balloon debt due in 2020, all relating to loans in default, and $10.4 million due in 2021.
- Management expects near-term pressure on operating cash flow from tenant rent relief or defaults. It anticipated reduced leasing, acquisition and disposition activity amid pandemic restrictions, while stating that tenant-relief negotiations could involve deferrals in exchange for lease extensions, rent increases or other favorable modifications. Management could not quantify COVID-19’s ultimate financial impact and gave no earnings guidance.
- Management cited the industrial and warehouse focus and tenant/geographic diversification as potential mitigants, but cautioned that rent relief requests, tenant defaults, capital-market access, property values, and transaction activity could adversely affect results and liquidity.
- Subsequent to quarter-end, the company reported a $10.7 million property sale, $37.6 million of gross ATM share proceeds, and an approximately $34.7 million industrial acquisition. It also reported selling 3.76 million ATM shares, primarily to fund an industrial acquisition.
- Future fixed rental receipts under leases in place at quarter-end totaled $2,680.5 million, assuming no new or renegotiated leases. These scheduled receipts are not a guarantee of collection.
Important facts for investors to verify
- Progress and outcomes of tenant rent-relief negotiations, rent collections, deferred rent recoverability and any tenant defaults or bankruptcies.
- Status and resolution of the two defaulted mortgages, including the vacant collateral properties and the $50.5 million of 2020 balloon debt.
- Available revolver capacity, covenant headroom, debt maturities and the company’s ability to access debt and equity markets.
- Whether subsequent ATM issuance and acquisitions materially change share count, leverage, liquidity or expected returns.
- Performance of acquired industrial properties and development projects, including completion timing and costs.
- Non-GAAP FFO and NOI reconciliations and the effect of property-sale gains, debt-satisfaction gains, rent-receivable adjustments and swap valuations on reported results.