LXP Industrial Trust (then Lexington Realty Trust) — Q1 2014 Form 10-Q
Reporting period: Three months ended March 31, 2014; unaudited. The filing describes a diversified net-lease real estate owner with about 220 consolidated properties across 41 states, 41.6 million square feet, and 97.2% occupancy. Results are not necessarily indicative of full-year performance.
Financial performance and position
| Metric | Q1 2014 | Q1 2013 / comparison |
|---|---|---|
| Gross revenue | $112.2 million | $92.7 million; up 21% |
| Rental revenue | $103.4 million | $85.0 million |
| Net income (loss) | $1.8 million | $(2.1) million |
| Net income (loss) attributable to common shareholders | $(0.8) million; reported per-share loss rounded to $0.00 | $(7.3) million; $(0.04) per share |
| Operating cash flow | $59.9 million | $57.1 million |
| Same-store NOI | $86.6 million; up 2.5% | $84.5 million |
| FFO, as adjusted (non-GAAP) | $66.4 million; $0.28 per share | $51.9 million; $0.25 per share |
| Cash and cash equivalents | $46.1 million | $77.3 million at December 31, 2013 |
| Debt | $2.11 billion carrying value, including debt in discontinued operations | $2.06 billion at December 31, 2013 |
Investing activities used $112.4 million, largely for property acquisitions, development and loans. Financing activities provided $21.2 million; cash declined $31.2 million during the quarter. The company reported $351.9 million available on its $400 million unsecured revolver, subject to covenant compliance. It was in compliance with debt covenants at quarter-end.
Quarterly common dividend was increased to $0.165 per share from $0.15 in 2013. Cash dividends to common and preferred shareholders totaled $39.1 million.
Material changes and notable items
- Revenue growth primarily reflected $18.7 million of rental revenue from acquisitions, partly offset by lower rents on some extensions and new leases. Same-store NOI rose 2.5%, mainly from rent escalations, while same-store occupancy declined to 97.1% from 97.7%.
- Continuing-operations impairment charges rose to $16.4 million from $2.4 million, including a $16.4 million write-down of an office property in Rochester, New York. Discontinued operations included a further $2.3 million impairment.
- Debt-satisfaction charges were $3.3 million, down from $10.7 million. The prior-year quarter also included $10.3 million of debt-satisfaction gains in discontinued operations, contributing to the reported year-over-year earnings comparison.
- Acquired three properties for approximately $79.6 million and invested in ongoing build-to-suit projects. Development commitments totaled up to $313.3 million; two additional acquisitions totaling $53.3 million were under contract.
- Weighted-average lease term was approximately 11.1 years on a cash basis, versus 7.2 years a year earlier. Twenty-eight new leases and extensions covered 1.7 million square feet; average GAAP base rent on extended leases was $3.51 per square foot versus $3.61 before extension.
Outlook, risks and contingencies
Management gave no numerical earnings or FFO guidance. It expected operating cash flow to cover operating costs, regular debt service and REIT distributions, with cash, revolver capacity, asset sales, equity issuance and other borrowing sources available for additional needs. Management cited $92.9 million of property-specific mortgage debt due in 2014 and $274.5 million due in 2015, and said it believed liquidity was sufficient to meet these obligations. Its stated strategy included recycling capital, selling non-core assets, extending debt maturities and reducing secured debt.
- Four properties were classified as held for sale at quarter-end, with $36.9 million of assets and $19.2 million of liabilities. Subsequent to quarter-end, the company sold interests in four properties for $41.1 million and financed a property with a $27.8 million non-recourse mortgage.
- A Westmont, Illinois loan was delinquent; the borrower’s tenant had terminated its lease. The loan’s carrying value was $12.5 million and contractual unpaid balance was $26.5 million at quarter-end, following a $13.9 million impairment in Q4 2013.
- Variable-rate debt not covered by swaps was $42.0 million. Management estimated a 100-basis-point rate increase would raise quarterly interest expense by approximately $81,000. Swaps hedged $505 million of term loans.
- Build-to-suit and acquisition commitments may not close or perform as expected. Other risks include leasing and occupancy changes, tenant defaults, interest rates, estimates of property fair value and refinancing needs. Management said ordinary-course legal proceedings were not expected, in aggregate, to have a material adverse effect; it reported no material change in previously disclosed risk factors.
Important facts for investors to verify
- Whether property sales and debt repayments reduce leverage and fund the 2014–2015 mortgage maturities as planned.
- Actual completion, cost and leasing outcomes for the development pipeline and contracted acquisitions.
- Collections and collateral value for the delinquent Westmont loan, and any further property or loan impairments.
- Whether occupancy, leasing spreads and same-store NOI remain resilient, and whether the dividend is supported by recurring cash flow.
- How non-GAAP FFO and adjusted FFO reconcile to GAAP earnings and cash flow; these measures are not substitutes for either.