LXP Industrial Trust (filing issuer: Lexington Realty Trust) — Q1 2016 Form 10-Q
Business context and period. The filing covers the three months ended March 31, 2016. Lexington Realty Trust was a REIT owning interests in approximately 215 consolidated properties across 40 states, with about 42.2 million square feet and 96.7% leased, excluding properties securing mortgages in default. Its portfolio was primarily single-tenant and net-leased.
Financial results and position
| Metric | Q1 2016 | Q1 2015 / comparison |
|---|---|---|
| Gross revenue | $111.6 million | $108.4 million; up 2.9% |
| Net income attributable to common shareholders | $48.1 million; $0.21 per diluted share | $31.8 million; $0.14 per diluted share |
| Operating cash flow | $59.2 million | $57.9 million |
| Net cash used in investing | $33.0 million | $233.1 million |
| Net cash used in financing | $38.6 million | Net cash provided of $38.9 million |
| Cash and cash equivalents at quarter-end | $80.9 million | $93.2 million at Dec. 31, 2015 |
| Total debt, carrying amount | $2.203 billion | $2.182 billion at Dec. 31, 2015 |
| Shareholders’ equity | $1.441 billion | $1.440 billion at Dec. 31, 2015 |
Same-store NOI was $75.7 million, down 6.2% as reported; adjusting the prior-year rent timing for two properties, it increased 0.4%. Same-store occupancy was 97.7%, compared with 97.5% a year earlier. The filing does not provide a conventional operating-margin figure. Diluted FFO per share and unit was $0.29 versus $0.30; Company diluted FFO was $72.1 million, or $0.30 per share and unit, versus $64.5 million, or $0.26.
Material changes and operating developments
- Common-shareholder net income rose $16.3 million. The comparison was affected by $17.0 million of property-sale gains and a $5.4 million gain from selling a non-consolidated investment in 2016. Q1 2015 included larger net debt-satisfaction gains ($10.5 million versus a $0.2 million charge in 2016) and a $1.1 million impairment charge.
- Revenue increased mainly from acquisitions and expansions, partly offset by property sales. Property operating expense decreased $4.5 million; depreciation and amortization increased $2.9 million.
- The company acquired a Detroit industrial property for $29.7 million, sold property interests for gross proceeds of $58.2 million, and received $6.7 million from a joint-venture property sale.
- It repurchased approximately 1.18 million common shares at an average $7.56 per share. It also obtained $57.5 million of 15-year mortgage financing at a fixed 5.2% rate and retired $8.3 million of mortgage debt.
Liquidity, outlook, risks and contingencies
- Management said operating cash flow should fund operating costs, debt service and regular dividends. It cited $80.9 million cash, $253.0 million of available revolver capacity (subject to covenants), property-sale proceeds and future operating cash flow as liquidity sources. The company reported compliance with corporate debt covenants.
- Property-specific mortgage balloon debt of $105.4 million was due in 2016 and $68.7 million in 2017. The $400 million revolving facility had $147 million drawn and matures in 2019, with an option to extend to 2020.
- Development commitments included three consolidated projects with a maximum commitment of about $298.6 million and $115.3 million invested at quarter-end. The company also had a commitment to fund up to $56.7 million for a Houston joint venture, of which $23.6 million had been funded. Management cautioned that projects may not be completed or meet expectations.
- A tenant-in-common borrower’s $8.4 million Oklahoma City loan was in maturity default. A separate lender lawsuit sought approximately $15.5 million plus interest and costs under a limited guaranty; the company intended to defend the claim, with a motion-to-dismiss hearing scheduled for June 15, 2016.
- Interest-rate swaps covered $505 million of term loans. Variable-rate debt was $147 million; management estimated a 100-basis-point rate increase would raise quarterly interest expense by approximately $471,000. Management noted that future earnings depend on acquisitions, dispositions and leasing, and may be affected by higher rates, vacancy, tenant defaults and delayed acquisitions. No numerical earnings or FFO guidance was provided.
- After quarter-end, the company agreed to fund up to $37 million for an Opelika, Alabama industrial project and reported sales of New York land for $37.5 million and a California office property for $19.0 million.
Important facts for investors to verify
- How much of the reported earnings increase is attributable to property and investment-sale gains rather than recurring operations; compare GAAP earnings with FFO and Company FFO.
- Progress on leasing, the reported 96.7% portfolio occupancy, same-store NOI trends and the treatment of rent-timing effects.
- Funding and completion risks for development projects, upcoming mortgage maturities, revolver availability and the defaulted Oklahoma City loan.
- Potential exposure and case developments in the $15.5 million guaranty lawsuit, alongside other disclosed guarantees and commitments.
- Whether subsequent property sales and the planned Opelika investment change liquidity, leverage or expected operating cash flow.