LXP Industrial Trust (filed as Lexington Realty Trust) — Q2 2021 Form 10-Q
Business context and period. The unaudited report covers the three and six months ended June 30, 2021; the filing was signed August 5, 2021. The REIT owned interests in approximately 135 consolidated properties across 28 states, primarily single-tenant, net-leased industrial properties.
Financial performance and position
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Gross revenue | $81.5m | $81.8m | $174.1m | $162.6m |
| Net income | $73.8m | $19.1m | $115.3m | $37.6m |
| Net income attributable to common shareholders | $71.0m | $17.3m | $110.4m | $33.8m |
| Diluted EPS | $0.26 | $0.06 | $0.40 | $0.13 |
| Operating cash flow | Not separately provided | Not separately provided | $108.7m | $93.5m |
| Adjusted diluted company FFO per share and unit | $0.18 | $0.19 | $0.41 | $0.38 |
- Q2 net income included $66.7m in property-sale gains, compared with $11.2m a year earlier. For the six-month period, sale gains were $88.6m versus $21.0m.
- Six-month rental revenue increased to $172.2m from $159.8m. It included $11.8m of lease-termination income, primarily associated with a tenant termination at a New Hampshire property.
- Six-month same-store NOI, a non-GAAP measure, rose 0.9% to $112.1m. Same-store leased area was 97.4%, compared with 99.3% a year earlier.
- Six-month cash flow from operations was $108.7m; investing activities used $140.3m and financing activities provided $50.4m. Cash, cash equivalents and restricted cash totaled $197.1m at June 30.
- Total debt carrying value was approximately $1.46bn, including $125m drawn on the revolving facility. The company reported $475m of revolver availability, subject to covenant compliance, and compliance with its corporate debt covenants. Debt fair value was estimated at $1.48bn.
- At June 30, total assets were $3.66bn and total equity was $2.05bn. The quarterly common dividend declared was $0.1075 per share.
Changes versus prior comparable periods
- Q2 common-shareholder income rose $53.7m year over year, largely because property-sale gains were $55.5m higher; this was partly offset by lower rental revenue and higher depreciation and property operating costs.
- For the first six months, common-shareholder income increased $76.6m. Drivers included higher rental revenue from acquisitions and termination income, lower interest expense, and higher sale gains; the comparison also benefited from no repeat of 2020 impairment and debt-satisfaction charges.
- Six-month operating cash flow increased $15.1m. Investing outflows were lower than in 2020, as lower acquisitions were partly offset by increased development spending and property-sale proceeds.
- Adjusted diluted FFO per share and unit rose to $0.41 for six months, but declined to $0.18 for Q2 from $0.19 in the prior-year quarter.
Outlook, risks and notable items
- No specific earnings or FFO guidance was provided. Management said operating cash flows, cash on hand, the revolver, property-sale proceeds, equity issuance and other financing alternatives were expected to support operating needs, debt service, dividends and development obligations.
- Management said COVID-19 rent-relief requests had not materially affected rental revenue as of June 30, while warning that tenant defaults or relief could affect future cash flows. It cited continued competitive pressure for industrial investments and supply-chain constraints affecting tenants and developments; long-term pandemic effects remained uncertain.
- Four consolidated development projects had an estimated aggregate cost of $267.0m, with approximately $147.2m of remaining funding expected, excluding joint-venture partners’ shares. The filing gives expected funding of approximately $90.5m in 2021, $40.8m in 2022 and $15.9m in 2023.
- Variable-rate debt not subject to swaps was $254.1m. Management estimated that a 100-basis-point rate increase would add about $0.7m to six-month interest expense at the reported debt levels. The $300m term loan was swapped to a fixed rate of 2.732%.
- The company had guaranteed obligations related to $395.5m of non-recourse debt at non-consolidated entities; management considered the likelihood of payment remote. Ordinary-course legal proceedings were not expected by management to have a material adverse effect.
- After quarter-end, the company acquired four industrial properties for about $105.6m, formed a joint venture for speculative warehouses estimated to cost about $132.8m, and borrowed another $90m under its revolver.
Key facts for investors to verify
- How much reported earnings and FFO growth is repeatable, given the large property-sale gains and lease-termination income?
- Whether same-store occupancy and NOI trends stabilize, and how tenant credit, COVID-related relief and supply-chain pressures develop.
- Development project costs, leasing progress, remaining funding needs and the timing and returns of post-quarter acquisitions and projects.
- Debt maturities, variable-rate exposure, covenant headroom, revolver usage and the potential cash impact of guarantees.
- Timing and dilution implications of unsettled forward share-sale contracts: the filing reported aggregate settlement prices of $191.8m for the May offering and $93.3m for other unsettled forward contracts, subject to adjustment.