LXP Industrial Trust — Q3 2022 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2022. Financial statements are unaudited. Dollar figures below are in millions unless noted.
Business context
LXP is a REIT focused on single-tenant industrial real estate. At quarter-end, it held interests in approximately 118 consolidated properties across 21 states, with 54.1 million square feet and 99.1% leased; 109 properties were warehouse/distribution facilities. The board suspended its strategic alternatives review in April 2022.
Financial performance and key metrics
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Total revenue | $80.1 | $83.4 | $240.1 | $257.5 |
| Net income | $23.6 | $7.1 | $76.0 | $122.3 |
| Net income attributable to common shareholders | $21.8 | $5.0 | $70.4 | $115.5 |
| Basic EPS | $0.08 | $0.02 | $0.25 | $0.42 |
| Operating cash flow | Not provided for the quarter | Not provided for the quarter | $154.1 | $167.4 |
| Same-store NOI (non-GAAP) | $53.9 | $51.8 | $153.5 | $148.7 |
| Adjusted Company FFO per diluted share and unit (non-GAAP) | $0.17 | $0.19 | $0.50 | $0.59 |
Q3 same-store NOI increased 4.1% year over year; nine-month same-store NOI increased 3.2%. Same-store occupancy was 99.5% at September 30, 2022, versus 99.9% a year earlier. The filing does not provide a consolidated operating margin figure.
Nine-month net cash used in investing activities was $208.2 million, primarily reflecting development investment and acquisitions, partly offset by property-sale proceeds. Financing activities used $107.5 million, including share repurchases, dividends and debt service. Cash and cash equivalents were $29.4 million at quarter-end, down from $190.9 million at December 31, 2021.
Quarter-end debt carrying amounts included $130.0 million drawn on the revolver, a $298.8 million term loan, $989.0 million of senior notes and $127.7 million of trust preferred securities, plus $74.9 million of mortgages and notes payable. The company reported $470.0 million of revolver availability, subject to covenant compliance, and compliance with applicable financial covenants. Total debt carrying value was $1.62 billion; estimated fair value was $1.40 billion.
Material changes versus comparable periods
- Q3 common-shareholder income rose to $21.8 million from $5.0 million, mainly reflecting higher property-sale gains and the absence of the prior-year debt-satisfaction loss; revenue was lower by $3.3 million.
- Nine-month common-shareholder income declined to $70.4 million from $115.5 million. Drivers included lower property-sale gains and $13.9 million less lease-termination income than in 2021, partly offset by $22.9 million of the company’s share of gains on sales by an unconsolidated joint venture and a $9.3 million sales-type lease gain.
- Nine-month operating cash flow fell $13.3 million, which management attributed mainly to property sales and lower termination-fee income, partly offset by acquired-property cash flows.
- Same-store NOI improved, although higher property operating expenses partly offset rent growth. Nine-month property operating expenses increased $8.3 million year over year.
Outlook, management commentary and risks
- Management said operating cash flows should fund operating costs, regular debt service and dividends, while also identifying cash, revolver capacity, property-sale proceeds, equity issuance and other financing alternatives as potential capital sources. No specific earnings or FFO guidance is provided.
- Six development projects had estimated aggregate project costs of $515.8 million. Remaining expected funding was approximately $169.7 million, excluding joint-venture partners’ share; management estimated $56.4 million of costs for the rest of 2022 and $113.3 million in 2023. Supply-chain issues could affect estimates.
- The July 2022 credit agreement extended revolver maturity to July 2026, with two six-month extension options, and transitioned the facility and term loan benchmark to SOFR. The term-loan swaps fixed its rate at 2.722% through January 2025. The company also had four swaps with $300 million notional.
- Variable-rate debt not covered by swaps was $259.1 million at quarter-end. Management estimated that a 100-basis-point rate increase would raise nine-month interest expense by approximately $1.5 million.
- Management highlighted inflation and rising interest rates, market disruption and economic uncertainty, tenant credit and rent collection, development execution and LIBOR transition risks. It noted the trust preferred securities lack a clear LIBOR fallback.
- The company had guaranteed obligations related to $608.7 million of non-recourse debt at unconsolidated entities; management considered payments under the guarantees remote. Ordinary-course legal proceedings were not expected to have a material adverse effect.
- After quarter-end, LXP leased approximately 100 acres in Phoenix for 20 years, repurchased 400,000 shares at an average $9.10 per share, and borrowed $55.0 million on its revolver.
Most important facts for investors to verify
- How recurring property operations and same-store rent growth compare with reported earnings, which were materially affected by sale gains, impairments, and other unusual items.
- Development leasing, completion timing, remaining funding needs, and exposure to construction costs and supply-chain delays.
- Liquidity after post-quarter revolver borrowing, planned development spending, dividends, and continued share repurchases.
- Exposure to rising rates, refinancing needs, covenant headroom, and the LIBOR fallback for trust preferred securities.
- Tenant credit, collections, occupancy trends, and the potential effects of economic weakness on property values and asset-sale proceeds.