LXP Industrial Trust — Q2 2022 Form 10-Q
Business context and reporting period. This unaudited quarterly report covers the three and six months ended June 30, 2022. LXP is a REIT focused on single-tenant industrial properties. At quarter-end it held interests in approximately 121 consolidated properties across 22 states, totaling 55.0 million square feet and 98.9% leased; 110 properties were warehouse/distribution facilities.
Key financial metrics
Amounts below are in millions, except per-share data. Cash flow figures are for the six months ended June 30.
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Gross revenue | $79.8 | $81.5 | $160.1 | $174.1 |
| Net income | $41.5 | $73.8 | $52.4 | $115.3 |
| Net income attributable to common shareholders | $39.7 | $71.0 | $48.7 | $110.4 |
| Common net income per share, diluted | $0.14 | $0.26 | $0.17 | $0.40 |
| Funds from operations (FFO) per diluted share and unit | $0.19 | $0.18 | $0.35 | $0.41 |
| Adjusted Company FFO per diluted share and unit | $0.17 | $0.18 | $0.33 | $0.41 |
- Same-store NOI was $53.0 million in Q2, up 3.2%, and $104.3 million for the first half, up 2.8%. Same-store occupancy was 99.3%, versus 98.5% a year earlier. The filing does not provide a consolidated operating-margin measure.
- Operating cash flow was $95.2 million, versus $108.7 million. Investing activities used $217.1 million; financing activities used $19.2 million. Cash and cash equivalents were $49.8 million at June 30, versus $190.9 million at year-end 2021.
- Debt carrying value totaled approximately $1.61 billion, including $120.0 million drawn on the revolver. Revolver availability was $480.0 million, subject to covenants. The company reported compliance with applicable corporate debt covenants.
- Quarter-end assets were $4.05 billion and total equity was $2.26 billion. The common dividend declared for Q2 was $0.12 per share.
Material changes versus the prior comparable period
- Q2 gross revenue fell $1.8 million year over year; first-half revenue fell $14.0 million. Management attributed the first-half decline primarily to $11.8 million of lease termination income recognized in the first half of 2021, as well as property sales, partly offset by acquisitions and higher advisory fees.
- Common-shareholder net income declined $31.3 million in Q2 and $61.7 million in the first half. Lower gains on property sales were a major factor: $27.9 million in Q2 2022 versus $66.7 million, and $28.1 million in the first half versus $88.6 million. First-half results also included a $9.3 million selling profit from a sales-type lease and increased equity-method earnings, largely reflecting gains on sales by an unconsolidated JV.
- First-half operating cash flow declined by $13.5 million. Investing outflows increased, including construction investment of $135.8 million versus $57.2 million; property acquisition spending was lower, while disposition proceeds were also lower.
- Q2 FFO per diluted share and unit increased to $0.19 from $0.18, while adjusted FFO decreased to $0.17 from $0.18. First-half FFO and adjusted FFO both declined year over year.
Outlook, management commentary, risks and unusual items
- Management said operating cash flows, cash on hand, revolver capacity, property-sale proceeds and potential equity or debt funding are expected to support operations, debt service, dividends and development. The filing provides no numerical full-year earnings or FFO guidance.
- Six consolidated development projects had estimated total costs of $515.8 million. Remaining funding to substantially complete them was estimated at $239.2 million, excluding joint-venture partners’ shares; approximately $143.9 million was expected in the rest of 2022 and $95.2 million in 2023. Management noted that supply-chain issues could affect estimates.
- The Board initiated a strategic alternatives review in February 2022 and suspended it in April. Q2 and first-half general and administrative expenses included costs related to that review and shareholder activism.
- During the first half, LXP repurchased 6.1 million shares at an average $11.45 per share. It also acquired properties for $131.2 million and disposed of properties with aggregate gross proceeds of $55.4 million. A $1.8 million impairment was recorded for a predominantly vacant property.
- Subsequent to quarter-end, LXP extended its revolving credit facility maturity to July 2026, reduced applicable margins and transitioned LIBOR-indexed borrowings to SOFR. It also repurchased 1.8 million shares at an average $10.65, increased its repurchase authorization by 10 million shares, and sold three properties for $92.0 million gross.
- Interest-rate exposure includes $249.1 million of variable-rate debt not covered by swaps; a 100-basis-point increase would have raised first-half interest expense by an estimated $0.9 million. LXP had $608.9 million of guarantees related to non-recourse debt of certain unconsolidated entities; management considered the likelihood of payment remote. The company also disclosed normal-course legal proceedings, which management did not expect in aggregate to have a material adverse effect.
Important facts for investors to verify
- Whether recurring rent growth and high occupancy can offset the effects of dispositions, tenant costs and weaker lease termination income.
- Development completion, leasing and remaining funding needs, especially given disclosed supply-chain risks and lower cash balances.
- Debt costs and liquidity following the post-quarter revolver extension and transition from LIBOR to SOFR, including covenant headroom.
- The sustainability of adjusted FFO and dividends apart from property-sale gains, JV transactions and the one-time sales-type lease profit.
- Potential obligations under guarantees and commitments, and the financial consequences of future asset sales and share repurchases.