LXP Industrial Trust — Q1 2024 Form 10-Q
Business context and reporting period. Unaudited results cover the three months ended March 31, 2024, compared with Q1 2023. LXP is a REIT focused on single-tenant industrial properties. At quarter-end, it had interests in approximately 118 consolidated properties across 18 states, totaling 57.3 million square feet; approximately 95.3% was leased.
Financial performance and position
- Revenue: Total gross revenue was $86.3 million, up 1.4% from $85.1 million. Rental revenue rose to $85.2 million from $83.4 million.
- Profit: Net loss attributable to common shareholders was $1.9 million, or $0.01 per share, versus net income of $9.5 million, or $0.03 per share, in Q1 2023. The prior-year period included a $7.9 million property-sale gain and $4.8 million of the company’s share of a joint-venture sale gain. Q1 2024 also had higher interest expense, including costs on notes issued in November 2023.
- REIT operating measures: Same-store NOI, a non-GAAP measure, increased 6.4% to $64.1 million; same-store leased occupancy was 99.2%, compared with 99.5%. Adjusted Company FFO, also non-GAAP, was $48.8 million, or $0.16 per diluted share, versus $50.3 million, or $0.17.
- Cash flow: Operating cash flow was $38.9 million, up from $37.5 million. Investing activities used $27.7 million and financing activities used $47.2 million. Cash, cash equivalents and restricted cash ended the quarter at $163.4 million, down $36.0 million during the quarter.
- Margins: The filing does not provide a clear operating-margin figure. Property operating expense was $15.2 million; depreciation and amortization was $47.5 million.
- Debt and liquidity: Debt carrying value totaled approximately $1.77 billion. Cash and short-term investments together were $293.8 million. The $600 million revolving facility was undrawn and available, subject to covenant compliance; LXP reported compliance with applicable corporate debt covenants. A $198.9 million senior note matures in June 2024, and LXP intends to use short-term investments to repay it at or near maturity.
- Distributions: LXP declared a quarterly common dividend of $0.13 per share, up from $0.125 in Q1 2023. Cash dividends to common and preferred shareholders totaled $39.5 million.
Material changes and operating activity
- Rental revenue and tenant reimbursements benefited from lease extensions and properties placed in service; property sales reduced revenue. Depreciation and amortization increased by $1.8 million as properties entered service.
- Interest and amortization expense increased by $5.6 million, primarily reflecting the November 2023 issuance of 6.75% senior notes. Non-operating income increased by $3.6 million, primarily due to interest income on short-term investments.
- No properties were sold and no real estate impairment charges were recorded in Q1 2024. Q1 2023 included a property sale and a $3.5 million impairment charge.
- LXP placed three facilities totaling approximately 2.6 million square feet and $197.9 million of initial capitalized cost in service: one 488,400-square-foot Phoenix facility was fully leased, while two facilities totaling approximately 2.1 million square feet were vacant when placed in service.
- LXP acquired land and began a 625,200-square-foot build-to-suit project in South Carolina, under a 12-year lease expected to commence in January 2025. It also amended an extended lease covering 119,295 square feet; average fixed rent increased from $5.15 to $6.59 per square foot.
Outlook, risks and contingencies
- No specific earnings or FFO guidance is provided. Management expects operating cash flow to fund operating and administrative costs, regular debt service and dividends, while noting that tenant defaults could reduce cash flow.
- Management said higher financing costs continue to weigh on transaction activity and development starts. It identifies leasing vacant development properties and mark-to-market lease rollovers as key near-term revenue drivers.
- Estimated remaining costs to substantially fund consolidated development commitments were approximately $99.7 million, excluding noncontrolling interests and potential developer fees or partner buyouts. Management cautioned that development risks, including supply-chain issues, could affect estimates; timing of funding for land held for potential development is uncertain.
- Variable-rate debt not subject to swaps was $129.1 million, with a 7.3% weighted-average rate in Q1. Management estimated that a 100-basis-point increase would have added approximately $0.3 million to quarterly interest expense. Four swaps cover the $300 million term loan through January 2025.
- LXP disclosed guarantees related to $457.7 million of non-recourse debt at non-consolidated entities; management considers the likelihood of payment remote. Ordinary-course legal proceedings are not expected by management to have a material adverse effect. No material risk-factor changes were reported.
- Management reported effective disclosure controls and no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether the two vacant newly placed-in-service facilities lease up as expected, and the resulting effect on occupancy, revenue and development returns.
- Repayment of the $198.9 million June 2024 note and the level of liquidity remaining afterward.
- Leasing progress and remaining funding needs for development projects, including the approximately $99.7 million commitment estimate.
- Interest expense and refinancing exposure, particularly the variable-rate trust preferred securities and the term loan’s swap expiration in January 2025.
- Whether operating cash flow and liquidity continue to cover dividends, debt service and planned investment amid higher financing costs or tenant defaults.
- Potential exposure under the $457.7 million of guarantees and any developments in legal proceedings or other contingencies.