LXP Industrial Trust — Q2 2023 Form 10-Q
Business context and period: Unaudited results for the quarter and six months ended June 30, 2023. LXP is a REIT focused on single-tenant industrial properties. At quarter-end it had interests in approximately 116 consolidated properties across 20 states, with 54.2 million square feet and 99.5% leased.
Financial results and key metrics
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Total gross revenue | $87.1 million | $79.8 million | $172.1 million | $160.1 million |
| Net income (loss) attributable to common shareholders | $(9.7) million | $39.7 million | $(0.2) million | $48.7 million |
| Adjusted Company FFO per diluted share/unit | $0.18 | $0.17 | $0.35 | $0.33 |
| Same-store NOI | $61.6 million | $58.3 million | $120.0 million | $114.1 million |
- Revenue grew approximately 9% in Q2 and 8% in the first half. Management attributed growth mainly to higher base rent and tenant reimbursements from acquisitions, completed developments and leasing, partly offset by property sales.
- Same-store NOI increased 5.6% for Q2 and 5.1% for the first half, primarily from higher cash base rents. Same-store occupancy was 99.8% in both comparison periods.
- Q2 GAAP results included $13.0 million of impairment charges, versus $1.8 million a year earlier. First-half impairment charges were $16.5 million versus $1.8 million. 2023 charges were primarily associated with office properties considered for sale.
- First-half property-sale gains were $7.9 million versus $28.1 million in 2022. The prior-year comparison also included $9.3 million of selling profit from a sales-type lease. These items contributed to lower GAAP earnings despite revenue growth.
- First-half operating cash flow was $92.6 million, compared with $95.2 million. Investing activities used $38.9 million, versus $217.1 million, reflecting lower acquisition and development spending; financing activities used $85.0 million, versus $19.2 million.
- Cash and cash equivalents were $23.2 million at June 30, down from $54.4 million at year-end 2022. Total debt carrying value was approximately $1.48 billion. The $600 million revolver had no borrowings and was fully available at quarter-end, subject to covenant compliance. Management reported compliance with applicable corporate debt covenants.
- Debt includes $198.9 million of senior notes due June 2024; other senior notes mature in 2030 and 2031. The $300 million term loan matures in January 2025, with its rate swapped to a fixed 2.722%. The $129.1 million of variable-rate debt not subject to swaps had a 6.5% weighted-average rate for the first half.
Material changes, outlook and risks
- Q2 leasing activity included new and extended leases covering 2.0 million square feet, including two speculative development projects totaling 1.6 million square feet. Average fixed rent on new leases was $7.27 per square foot.
- Six consolidated development projects had estimated aggregate costs of $425.0 million. LXP expected to fund approximately $77.0 million during the remainder of 2023 to substantially complete construction, tenant improvements and leasing costs, excluding partners’ shares. Management said higher financing costs had slowed transactions and development starts; supply-chain and other development risks could affect estimates.
- Management expects operating cash flows to support operating costs, debt service and dividends, while identifying cash, the revolver, disposition proceeds, equity and other debt as potential funding sources. This is not quantified earnings guidance. Management cautioned that tenant defaults amid economic conditions could reduce cash flow and that capital-market volatility could constrain equity access.
- Common and preferred dividends paid in the first half totaled $76.1 million. The declared quarterly common dividend was $0.125 per share, up from $0.12 in the prior-year period.
- LXP guaranteed obligations associated with $503.9 million of non-recourse debt at non-consolidated entities; management considered payment under the guarantees remote. It also reported ordinary-course legal proceedings that it did not expect, in aggregate, to have a material adverse effect.
- After quarter-end, LXP acquired a vacant 124,450-square-foot Dallas-area facility for $14.9 million and borrowed a net $50 million on its revolver. It also agreed to fund all construction costs, including its partner’s share, for the Etna Park 70 project; the project’s estimated total cost is $29 million.
Important facts for investors to verify
- Whether the office-property impairments and planned dispositions reflect further valuation or earnings risk.
- Leasing progress and stabilization at development projects that were available for lease, and the timing and cost of the remaining development commitments.
- Plans for the June 2024 senior-note maturity and the effect of rates on floating-rate debt and refinancing costs.
- Liquidity after the subsequent $50 million revolver borrowing, future development funding and any exposure under guarantees.
- Tenant credit, rent collections and the sustainability of dividends relative to recurring cash flow and FFO; FFO is a non-GAAP measure and is not equivalent to operating cash flow.