LXP Industrial Trust (Lexington Realty Trust) — Q3 2015 Form 10-Q
Business context and reporting period. The filing covers the quarter and nine months ended September 30, 2015. Lexington Realty Trust owned interests in approximately 215 consolidated properties across 40 states, totaling about 41.7 million square feet; approximately 96.5% was leased, excluding properties subject to mortgage loans in default. Its revenue was predominantly generated from property rents, with most assets under net leases.
Key financial results
| Metric | Q3 2015 | Q3 2014 | Nine months 2015 | Nine months 2014 |
|---|---|---|---|---|
| Gross revenue | $105.4 million | $106.6 million | $324.2 million | $316.0 million |
| Net income (loss) attributable to common shareholders | $(7.6) million | $38.7 million | $71.9 million | $50.6 million |
| Basic and diluted net income (loss) per common share | $(0.03) | $0.17 | $0.31 | $0.22 |
| Operating cash flow | Not separately reported | Not separately reported | $181.5 million | $165.5 million |
| FFO per diluted common share and unit | $0.27 | $0.28 | $0.87 | $0.80 |
| Company FFO per diluted common share and unit | $0.27 | $0.28 | $0.81 | $0.84 |
At September 30, cash and cash equivalents were $86.3 million, total assets were $3.65 billion, and total equity was $1.47 billion. Debt totaled approximately $2.02 billion, compared with $2.09 billion at December 31, 2014. This debt figure includes mortgages and notes, credit-facility borrowings, term loans, senior and convertible notes, and trust preferred securities.
Same-store NOI for the first nine months was $218.0 million, down 0.5% from $219.0 million. Same-store occupancy was 97.3%, versus 98.6% a year earlier. The weighted-average lease term was approximately 12.4 years on a cash basis.
Material changes and notable items
- Nine-month revenue increased $8.2 million, primarily from acquisitions and expansions; rental revenue attributable to properties sold and changes in occupancy or lease terms partially offset that growth.
- Q3 common-shareholder results swung to a $7.6 million loss, mainly due to $32.8 million of impairment charges, primarily associated with the sale of a Baltimore office property. For the nine months, impairment charges were $34.1 million.
- Nine-month results included $23.3 million of gains on property sales and net debt-satisfaction gains of $13.8 million. The company reported gross property dispositions of $217.7 million during the period and conveyed two vacant office properties in satisfaction of a $30.3 million non-recourse mortgage.
- Investing activities used $172.8 million; financing activities used $113.4 million. Cash declined by $104.8 million during the nine months, from $191.1 million to $86.3 million.
- In September, the company replaced its revolving credit facility and term loans with a $905 million unsecured credit agreement. The revolving facility was extended to 2019, with an option to extend to 2020; term-loan maturities were extended to 2020 and 2021. At quarter-end, $73 million was drawn on the revolver, with $317 million available, subject to covenant compliance.
- The company repurchased 1.31 million common shares in Q3 at an average $8.42 per share under a new 10 million-share authorization.
Outlook, risks and contingencies
Management said operating cash flow was expected to fund operating costs, regular debt service and dividends; additional anticipated sources included cash, credit-facility capacity, property-sale proceeds, equity issuance and other borrowing. It cited $129.9 million of property-specific mortgage balloon debt due in 2016 and believed available cash, revolver capacity and operating cash flow were sufficient to meet obligations. No quantified earnings or FFO guidance was provided.
Management described its focus as growing stable cash flow through long-term leased investments, reducing lease rollover risk and maintaining balance-sheet flexibility. It cautioned that future results depend on acquisitions and leasing, and may be affected by interest rates, occupancy, tenant defaults and transaction timing. The company stated that proposed acquisitions and development transactions were not assured of completion.
A lender sought approximately $15.5 million, plus costs, under a limited guaranty after the sole tenant vacated a Bridgewater, New Jersey property and the property-owning subsidiary defaulted. The company intended to defend the claim and had filed a motion to dismiss. Separately, a related-party guaranty could cover up to $18 million for a proposed EB-5 financing; the joint venture had not received the funds and no liability was recorded. The company reported compliance with applicable corporate debt covenants at quarter-end.
Subsequent events included a $152 million revolver borrowing in anticipation of a Richland, Washington acquisition, and a fixed-rate financing commitment for that property; the filing cautioned that neither transaction was assured. The company also entered into a Charlotte build-to-suit agreement with a maximum commitment of $62.4 million.
Most important facts for investors to verify
- Review the valuation assumptions and leasing or sale status underlying the $32.8 million Q3 impairment and the Baltimore property disposition.
- Track same-store occupancy and NOI, lease renewals, vacancy exposure and the cost of tenant improvements and leasing commissions.
- Confirm progress on 2016 mortgage maturities, committed acquisitions and developments, and the company’s liquidity after subsequent borrowings.
- Monitor the Bridgewater guaranty litigation and the potential exposure under other guarantees and commitments.
- Assess the sustainability of dividends and distinguish GAAP earnings, FFO and Company FFO; the filing states that FFO is a non-GAAP measure and is not cash flow or a liquidity measure.