LXP Industrial Trust — Q3 2023 Form 10-Q
Reporting period: Three and nine months ended September 30, 2023. LXP is a REIT focused primarily on single-tenant industrial properties. At quarter-end, it had interests in approximately 115 consolidated properties across 19 states, totaling 53.9 million square feet; the portfolio was 99.0% leased.
Financial performance and condition
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Gross revenue | $85.4 million | $80.1 million | $257.5 million | $240.1 million |
| Net income | $12.9 million | $23.6 million | $16.4 million | $76.0 million |
| Net income attributable to common shareholders | $11.0 million | $21.8 million | $10.9 million | $70.4 million |
| Basic and diluted EPS | $0.04 | $0.08 | $0.04 | $0.25 |
| Operating cash flow | Not stated for quarter | Not stated for quarter | $153.5 million | $154.1 million |
| Adjusted Company FFO per diluted share and unit | $0.18 | $0.17 | $0.52 | $0.50 |
| Same-store NOI growth | 4.7% | — | 4.3% | — |
At September 30, cash and cash equivalents were $35.4 million. Total debt carrying value was approximately $1.481 billion, including mortgages and notes, the term loan, senior notes and trust preferred securities. The $600 million revolving facility had no borrowings and $600 million available, subject to covenant compliance; LXP subsequently borrowed $25 million. LXP reported compliance with corporate debt covenants. Total assets were $3.929 billion and total equity was $2.294 billion.
For the first nine months, net cash used in investing was $46.5 million and net cash used in financing was $125.9 million. Cash, cash equivalents and restricted cash declined by $18.9 million to $35.6 million. The quarterly common dividend was $0.125 per share; dividends paid to common and preferred shareholders totaled $114.0 million during the nine-month period.
Changes versus the prior comparable period
- Revenue increased by $5.3 million in Q3 and $17.4 million for the first nine months, primarily from higher base rents and tenant reimbursements, partly offset by property sales.
- Common-shareholder net income fell by $10.7 million in Q3 and $59.6 million for the first nine months. Lower gains on property sales were a major factor; nine-month results also reflected $16.5 million of impairment charges, versus $2.5 million in 2022, and lower equity-method earnings and no comparable sales-type lease selling profit.
- Operating cash flow was broadly stable year over year, down $0.6 million for the nine-month period. Investment outflows were substantially lower than in 2022, reflecting reduced acquisition and development activity.
- Same-store NOI increased, while same-store occupancy was 99.2% for Q3 versus 99.3% in 2022.
- Unhedged variable-rate debt was $129.1 million, or 8.7% of consolidated indebtedness, compared with $259.1 million, or 15.9%, a year earlier. The variable-rate weighted-average interest rate was 7.0% in Q3 2023 versus 3.5% in Q3 2022.
Outlook, risks and notable items
- Management expects operating cash flow to support operating costs, regular debt service and dividends, while identifying tenant defaults amid economic conditions as a potential near-term pressure. It cited cash, revolving capacity, property-sale proceeds, equity and debt financing as potential liquidity sources. The filing provides no specific earnings or FFO guidance.
- Six consolidated development projects had estimated total costs of $426 million. Remaining funding to substantially complete them was estimated at $52.6 million, excluding noncontrolling partners’ share: approximately $23.5 million for the remainder of 2023 and $29.1 million in 2024. Management cautioned that development risks, including supply-chain issues, could affect estimates. Additional land development timing is uncertain.
- In Q3, LXP leased 0.8 million square feet, including a 0.3 million-square-foot speculative development, and sold two office properties for gross proceeds of $48.1 million. Nine-month property dispositions generated $15.0 million in gains; impairment charges were primarily on office assets in connection with potential sales.
- The 2024 maturity of $198.9 million of senior notes is the nearest stated senior-note maturity. The $300 million term loan matures in January 2025; its rate was swapped to a fixed 2.722%. Trust preferred securities of $129.1 million bear a variable rate, reported at 7.331% at quarter-end, and mature in 2037.
- LXP had guaranteed obligations associated with $469 million of non-recourse debt at non-consolidated entities; management considered the likelihood of payment remote. Ordinary-course legal proceedings were not expected by management to have a material adverse effect.
- Management reported effective disclosure controls and no material change in internal control over financial reporting during the quarter. No material changes to previously disclosed risk factors were reported.
Key facts for investors to verify
- Whether leasing, occupancy and rent growth continue to offset property dispositions and any tenant credit deterioration.
- Progress on leasing available development projects, completion costs and remaining funding obligations, including potential supply-chain or cost changes.
- Liquidity and refinancing plans for the June 2024 senior-note maturity, as well as the effect of variable rates on trust preferred securities and other unhedged debt.
- Assumptions and valuation effects behind the $16.5 million of impairments, planned office-property sales and reported gains on dispositions.
- Potential exposure under the $469 million of guarantees and the terms and execution of the expected December 31, 2023 operating partnership merger.