LXP Industrial Trust: FY 2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023; comparisons are primarily with FY 2022. LXP is a REIT focused on single-tenant warehouse and distribution properties. At year-end, it held interests in approximately 115 consolidated properties across 18 states, with 54.6 million square feet and 99.8% of space leased.
Financial and operating performance
| Metric | FY 2023 | FY 2022 |
|---|---|---|
| Total gross revenue | $340.5 million | $321.2 million |
| Net income | $35.9 million | $116.2 million |
| Net income attributable to common shareholders | $23.9 million; $0.08 per diluted share | $107.3 million; $0.38 per diluted share |
| Operating cash flow | $209.4 million | $194.3 million |
| Same-store NOI | $225.3 million; up 4.0% | $216.6 million |
| FFO available to common shareholders and OP unitholders, basic | $199.6 million; $0.69 per share/unit | $223.7 million; $0.80 per share/unit |
| Adjusted Company FFO, diluted | $206.2 million; $0.70 per share/unit | $193.1 million; $0.67 per share/unit |
Revenue growth reflected higher base rents and tenant reimbursements, including from lease extensions and properties placed in service, partly offset by dispositions. GAAP net income fell substantially: FY 2022 included $47.1 million of sales-type lease selling profit and $59.1 million of property-sale gains, compared with no comparable sales-type lease profit and $33.0 million of property-sale gains in FY 2023. Impairment charges rose to $16.5 million from $3.0 million, primarily on non-core assets with shortened expected holding periods. The filing does not state a consolidated profit margin.
Same-store NOI growth reflected higher occupancy and cash base rents. LXP completed 6.8 million square feet of new leases and extensions; on second-generation new and extended leases, average fixed rent was $5.40 per square foot versus $3.85 before extension. Industrial base and cash base rents increased 40.1% and 27.0%, respectively, on the reported leasing activity; excluding fixed-rate renewals, increases were 52.3% and 37.3%.
Debt, liquidity and distributions
- Consolidated debt was approximately $1.8 billion at year-end, with a weighted-average interest rate of about 3.9%. Consolidated mortgages and notes payable were $60.9 million, at a weighted-average rate of about 4.0%.
- Cash and cash equivalents were $199.2 million, with $130.1 million of short-term investments. The $600 million revolving credit facility had no borrowings outstanding and was available subject to covenant compliance.
- LXP issued $300 million of 6.75% senior notes due 2028, using proceeds to repay revolving-credit borrowings and for general corporate purposes. It also extended its $300 million term loan maturity to January 2027; its SOFR exposure is swapped to a stated fixed rate of 2.722% through January 2025.
- $198.9 million of 4.40% senior notes mature in June 2024. Management expects to meet this maturity using cash and short-term investments. The filing reports compliance with corporate debt covenants at year-end.
- Operating cash flow was $209.4 million; investing activities used $183.5 million and financing activities provided $119.0 million. Cash dividends to common and preferred shareholders totaled $151.9 million. The 2023 common dividend was $0.505 per share.
Portfolio changes, outlook and risks
- LXP acquired one warehouse/distribution property for $15.0 million, completed core-and-shell construction on seven facilities totaling 4.2 million square feet, and placed 1.8 million square feet into service. It invested $122.1 million in development activities. Gross dispositions of consolidated interests and a land parcel totaled $100.2 million.
- Management expects to prioritize build-to-suit development in 2024 and limit speculative development to markets with sufficient tenant demand. It expects to recycle older industrial properties and assets outside target markets, using proceeds to reduce debt and invest in target markets. Management cautions that capital recycling can dilute near-term earnings.
- At year-end, 98.1% of industrial leases had scheduled rent increases, averaging 2.6% at the next rent step. The industrial portfolio’s weighted-average remaining lease term was 6.0 years. Leases representing 5.9% of ABR expire in 2024; 58.0% of industrial ABR is scheduled to expire during 2024–2029.
- Development projects available for lease included substantial completed space; the filing reports several projects with no leasing at year-end. LXP estimated approximately $53.2 million of remaining costs to substantially fund consolidated development commitments, excluding noncontrolling interests and potential developer fees or partner buyouts.
- Key risks include tenant default or non-renewal at single-tenant properties, re-leasing costs and vacancies, development delays or cost overruns, higher interest rates and refinancing needs, industrial-market concentration, insurance-cost increases, environmental and climate exposure, and access to capital. The largest tenant represented 6.9% of ABR; investment-grade tenants accounted for 49.9%.
- No material environmental condition or material ordinary-course legal proceeding was identified in the filing. Management and the auditor reported effective internal control over financial reporting, and the auditor issued unqualified opinions on the financial statements and internal controls.
Important facts for investors to verify
- Lease renewal, re-leasing and tenant-credit progress for the 2024 expirations and the larger 2026–2029 expiration cohorts.
- Leasing pace and funding needs for completed or near-completed development projects, including the estimated $53.2 million commitment.
- How the 2024 senior-note maturity is funded and the effect of refinancing and variable-rate debt costs after hedge expirations in January 2025.
- Whether planned property recycling improves leverage and returns despite possible near-term earnings dilution.
- How recurring FFO and operating cash flow compare with dividends and development spending; FFO and NOI are non-GAAP measures and are not substitutes for cash flow or GAAP earnings.