LXP Industrial Trust (Lexington Realty Trust) — FY 2020 Form 10-K
Reporting period: Fiscal year ended December 31, 2020. The filing is an annual report, not a standalone fourth-quarter filing. Amounts are U.S. dollars unless noted.
Business context
Lexington Realty Trust is a REIT focused on single-tenant industrial real estate, especially warehouse and distribution properties. At year-end, it held interests in approximately 130 consolidated properties across 29 states, totaling 56.1 million square feet and 98.3% leased. Industrial assets represented 90.8% of gross book value. Management’s strategy is to grow industrial holdings, recycle non-industrial assets, manage lease rollover and preserve balance-sheet flexibility.
Financial and operating highlights
| Metric | FY 2020 | FY 2019 |
|---|---|---|
| Total gross revenue | $330.4 million | $326.0 million |
| Net income | $186.4 million | $285.3 million |
| Net income attributable to common shareholders | $176.8 million | $273.2 million |
| Diluted earnings per common share | $0.66 | $1.15 |
| Net cash from operating activities | $201.8 million | $192.2 million |
| Same-store NOI | $200.8 million | $197.6 million |
| FFO per diluted share and unit | $0.84 | $0.78 |
| Adjusted Company FFO per diluted share and unit | $0.76 | $0.80 |
| Common dividends declared per share | $0.4225 | $0.4125 |
Revenue rose about 1.4%, while net income attributable to common shareholders fell about 35%. The decline principally reflected lower gains on property sales: $139.0 million in 2020 versus $250.9 million in 2019. Lower interest expense partly offset the decline. Same-store NOI increased 1.6%, although same-store leased area fell to 97.6% from 99.0%.
Cash and cash equivalents were $178.8 million at year-end. Consolidated indebtedness was approximately $1.34 billion, with a weighted-average interest rate of approximately 3.3%; the $600 million revolving facility had no year-end borrowings, subject to covenant compliance. Variable-rate debt not covered by swaps was $129.1 million. Cash dividends paid to common and preferred shareholders totaled $118.4 million.
Portfolio activity and material changes
- Acquired 16 warehouse/distribution properties for approximately $611.8 million and invested about $60.2 million in five development projects.
- Disposed of interests in 16 properties for a gross price of $432.8 million. Net cash proceeds from property sales reported in investing activities were $192.6 million.
- Issued $400 million of 2.70% senior notes due 2030; used part of the proceeds to repurchase $61.2 million of 2023 notes and $51.1 million of 2024 notes. Repurchases resulted in a $10.1 million debt-satisfaction charge.
- Issued 17.25 million common shares in an underwritten offering, generating approximately $164 million net, and sold approximately 6.0 million shares through its ATM program for approximately $61 million net. It also repurchased approximately 1.3 million shares at an average $8.28 per share.
- Conveyed three properties to lenders through foreclosure or deed-in-lieu, recognizing aggregate debt-satisfaction gains of $34.5 million. Reported real estate impairment charges were $14.5 million, up from $5.3 million in 2019.
Outlook, risks and unusual items
Management said COVID-19 rent-relief requests had not materially affected rental revenue as of year-end, and cited the industrial focus and tenant diversification as mitigants. It could not estimate the pandemic’s longer-term financial effects. It noted increased competition for warehouse assets and compressed initial capitalization rates, which can raise acquisition costs and reduce investment yields. Management expects continued recycling into industrial properties, but acknowledged that dispositions and reinvestment may dilute near-term earnings.
Three consolidated development projects were expected to require approximately $76.0 million of funding in 2021; one project was 0% leased at year-end. A $10.4 million property-level balloon payment was due in 2021. The company had substantial lease, refinancing, tenant-default, vacancy, development, interest-rate, and REIT-qualification risks. Its trust preferred securities and other instruments referenced LIBOR, whose planned discontinuation could require transition planning. Management intended to continue regular quarterly dividends, but future declarations remain subject to board discretion and available cash.
Subsequent to year-end, the company acquired three industrial properties for approximately $50.8 million and disposed of two office properties for approximately $20.2 million gross. The filing provides no specific earnings or FFO guidance for 2021.
The financial statements received an unqualified audit opinion, and the auditor also issued an unqualified opinion on internal control over financial reporting. The auditor identified real estate impairment testing as a critical audit matter because it depends on subjective assumptions, including holding periods, rental rates and capitalization rates.
Important facts for investors to verify
- Whether leasing, rent collection and occupancy remain resilient, particularly for near-term expirations and the 2021 single-tenant lease roll.
- Whether acquisitions, dispositions and development spending generate acceptable yields despite asset competition and potential near-term earnings dilution.
- Debt maturities, refinancing needs, covenant headroom and liquidity after development commitments and dividends.
- The assumptions behind impairment estimates and the economic impact of foreclosures and other nonrecurring debt-satisfaction gains.
- Share dilution and proceeds from outstanding forward-sale contracts covering approximately 5.0 million shares, with a year-end settlement price of about $55.1 million.
- Non-GAAP FFO and NOI reconciliations: the filing cautions that these measures are not substitutes for GAAP earnings or operating cash flow and may not be comparable across REITs.