LXP Industrial Trust — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022. Dollar amounts below are in millions unless otherwise noted. LXP is a REIT focused on single-tenant industrial properties. At quarter-end, it had interests in approximately 123 consolidated properties across 23 states, with 55.6 million square feet and 98.9% leased.
Financial performance and position
| Metric | Q1 2022 | Q1 2021 / prior period |
|---|---|---|
| Gross revenue | $80.3 | $92.6 |
| Net income | $10.9 | $41.5 |
| Net income attributable to common shareholders | $9.0; $0.03 per diluted share | $39.4; $0.14 per diluted share |
| Operating cash flow | $42.1 | $57.4 |
| Cash and cash equivalents at quarter-end | $49.1 | $190.9 at December 31, 2021 |
| Debt, net carrying amount | $1,494.8 | $1,497.1 at December 31, 2021 |
| Same-store NOI | $53.0; up 2.5% | $51.7 |
| FFO available to common shareholders and unitholders, basic | $45.2; $0.16 per share/unit | $62.0; $0.22 per share/unit |
| Adjusted Company FFO, diluted | $48.1; $0.16 per share/unit | $63.7; $0.22 per share/unit |
Net income was affected by real estate depreciation and amortization of $44.5 million, interest expense of $10.7 million, and a $11.3 million share of gains from sales by an unconsolidated joint venture. No property impairment charges were recorded. The filing does not provide a single consolidated operating-margin measure.
Material changes and operating activity
- Revenue fell $12.3 million year over year, mainly because Q1 2021 included $10.9 million of lease termination income and because of property sales; acquisitions partly offset the decline.
- Net income attributable to common shareholders declined $30.4 million, reflecting lower property-sale gains and the revenue decrease. Q1 2021 included $21.9 million of gains on property sales; Q1 2022 included $0.3 million.
- Same-store NOI rose 2.5%, primarily from higher occupancy and cash base rents. Same-store leased area was 99.4%, compared with 98.4% a year earlier.
- Q1 leasing activity covered 2.3 million square feet. Average fixed rent on extended leases was $5.68 per square foot, versus $5.04 before extension.
- LXP acquired two Cincinnati/Dayton-area facilities for approximately $72.0 million. Five consolidated development projects had estimated total costs of $466.4 million; estimated remaining LXP funding to substantially complete them was approximately $243.8 million, excluding partners’ shares.
- Cash used in investing activities was $152.5 million, mainly for acquisitions and construction. Financing cash outflow was $31.4 million, including a $28.0 million purchase of the remaining 13% interest in a consolidated joint venture.
Liquidity, debt, and outlook
- At March 31, LXP had no revolver borrowings and $600.0 million of availability, subject to covenant compliance. The $600.0 million facility matures in February 2023, with an option to extend to February 2024. LXP reported compliance with applicable corporate debt covenants.
- Senior notes totaled $998.9 million face value, with maturities from 2024 to 2031. A $300.0 million term loan is due in 2025; its interest rate was swapped to a fixed 2.732%. Trust preferred securities had $129.1 million principal outstanding and a 1.999% rate at quarter-end.
- Management said operating cash flows should fund operating costs, regular debt service, and dividends, while identifying cash, the revolver, property-sale proceeds, equity issuance, and other debt as additional potential funding sources. It cautioned that tenant rent relief or defaults could reduce cash flow.
- Development costs expected to be incurred were approximately $229.9 million for the remainder of 2022 and $13.9 million in 2023. Management noted development risks, including supply-chain issues, could affect estimates.
- The Board initiated a strategic alternatives review in February 2022 and announced its suspension on April 8, 2022. No specific earnings or operating guidance is provided in the filing.
- Subsequent to quarter-end, LXP acquired a Phoenix facility for approximately $59 million, borrowed $80 million net under its revolver, began two Central Florida developments, sold three properties for approximately $55 million gross proceeds, and repurchased 1,238,427 shares at an average $13.41 per share.
Risks, contingencies, and unusual items
- Variable-rate debt not subject to swaps was $129.1 million. Management estimated that a 100-basis-point rate increase would raise quarterly interest expense by approximately $0.3 million. Four swaps hedged the $300 million term loan.
- LXP had guaranteed $666.7 million of non-recourse debt of unconsolidated entities; management considered the likelihood of payment remote. Ordinary-course legal proceedings were not expected by management to have a material adverse effect, although outcomes are uncertain.
- Tenant receivable collectability, property valuations, acquisition purchase-price allocations, and development execution rely on estimates and assumptions. The filing notes that actual results may differ materially.
- The $36.8 million of Q1 dividends included a declared common dividend of $0.12 per share, up from $0.1075 in Q1 2021. The company also had 16 million forward-sale shares from a 2021 underwritten offering unsettled at quarter-end, with an indicated aggregate settlement price of $185.3 million, subject to adjustment and settlement elections.
- Management reported effective disclosure controls as of March 31, 2022, no material changes to internal control over financial reporting, and no material changes to the risk factors disclosed in its 2021 Form 10-K.
Important facts for investors to verify
- Whether the strategic alternatives process remains suspended and whether any subsequent developments affect capital allocation or strategy.
- Actual leasing, occupancy, tenant collections, and same-store NOI trends, including the sustainability of rent growth.
- Development costs, completion schedules, pre-leasing, and remaining funding needs, particularly given supply-chain and construction risks.
- Liquidity after subsequent revolver borrowing, property sales, share repurchases, and settlement of the 16 million forward-sale shares.
- Debt maturities, covenant headroom, exposure to floating rates, and potential obligations under the $666.7 million of joint-venture debt guarantees.
- How much of the year-over-year decline in reported earnings reflects nonrecurring property gains and termination income versus underlying operations; FFO and adjusted FFO are non-GAAP measures and are not substitutes for cash flow.