LXP Industrial Trust (then Lexington Realty Trust) — FY 2013 Form 10-K
Reporting period: Year ended December 31, 2013. This is an annual filing, not a standalone fourth-quarter report. The registrant’s name in the filing was Lexington Realty Trust.
Business context
The company was a Maryland REIT focused on single-tenant net-leased real estate, land investments, and related advisory services. At year-end, it held interests in approximately 220 consolidated properties across 41 states, totaling 40.7 million square feet; 97.6% was leased. No tenant or guarantor generated more than 10% of annual base rent.
Management’s strategy emphasized acquiring long-term leased assets, recycling capital from non-core properties, reducing secured debt, and maintaining balance-sheet flexibility. In 2013 the company received investment-grade unsecured debt ratings from Moody’s and S&P.
Financial and operating highlights
| Metric | FY 2013 | FY 2012 |
|---|---|---|
| Total gross revenue | $398.4 million | $330.2 million |
| Rental revenue | $366.6 million | $300.0 million |
| Net income (loss) attributable to common shareholders | $(14.1) million; $(0.07) per basic share | $156.8 million; $0.99 per basic share |
| Net cash from operating activities | $206.3 million | $163.8 million |
| Net cash used in investing activities | $(597.6) million | $(134.1) million |
| Net cash from (used in) financing activities | $434.5 million | $(59.4) million |
| Total assets | $3.77 billion | $3.42 billion |
| Consolidated debt | $2.06 billion | $1.88 billion |
Same-store cash NOI declined 0.2% to $241.9 million; same-store occupancy was 97.6%, down from 98.3%. Reported Company FFO was $198.9 million ($0.89 basic per share), while Company FFO, as adjusted, was $230.1 million ($1.02 per share). Both FFO measures are non-GAAP; adjusted FFO excludes items management considers non-recurring.
Cash and cash equivalents were $77.3 million. The company reported $344.4 million available under its revolving facility and $99.0 million available under its term loan, subject to covenant compliance. Debt had a weighted-average rate of approximately 4.7% and weighted-average maturity of 7.0 years. The company paid $135.5 million in cash dividends to common and preferred shareholders.
Changes versus the prior year
- Revenue increased 20.7%, primarily from acquisitions and related rental income. Same-store NOI was nearly flat, with higher property expenses offsetting rent and reimbursement growth.
- Common-shareholder results swung from $156.8 million of income in 2012 to a $14.1 million loss in 2013. The comparison is substantially affected by a $167.9 million 2012 gain on the NLS acquisition; 2013 also included impairment and loan-loss charges.
- Operating cash flow rose $42.5 million. Investing outflow increased substantially as the company accelerated acquisitions and development spending.
- Debt increased by approximately $177.6 million, while secured debt declined to approximately $1.2 billion from $1.7 billion. Management reported a 74-basis-point reduction in the weighted-average interest rate on consolidated debt.
- The company issued 36.0 million common shares through public offerings and its direct purchase plan, and 3.4 million shares through its ATM program. Year-end common shares outstanding rose to 228.7 million from 178.6 million.
- All 6.2 million Series D preferred shares were repurchased for approximately $155.6 million, including accrued dividends. A further $54.9 million principal amount of convertible notes was converted into approximately 7.9 million common shares.
- Cash dividends declared per common share were reported as $0.615 for 2013 versus $0.55 for 2012; quarterly payments during 2013 were $0.15 each.
Outlook, risks, and unusual items
- Management expected 2014 investment activity of approximately $300–$350 million, including $200–$225 million of build-to-suit investments. It expected dispositions to be roughly equal to acquisitions, with a focus on multi-tenant and some single-tenant office properties. These were expectations, not assured outcomes.
- The company expected an aggregate annual common dividend of $0.66 per share for the 2014 taxable year, subject to Board approval and actual financial conditions.
- Management aimed to increase rental revenue from leases of ten years or longer to at least half of total rental revenue; the 2013 share was 30.1%, compared with 23.1% in 2012. Lease expirations through 2018 represented approximately 36.9% of rental revenue.
- Near-term refinancing exposure included non-recourse property mortgage balloon payments of $93.0 million in 2014 and $275.3 million in 2015. The company cautioned that refinancing or property sales might not be available on acceptable terms; some non-recourse properties could instead be transferred to lenders.
- 2013 included $34.6 million of non-cash real-estate impairment charges and a $13.9 million loan loss on a Westmont, Illinois loan after the tenant terminated its lease. The company also foreclosed on a Schaumburg, Illinois loan collateralized by an office property.
- Key risks include single-tenant default or vacancy, lease renewal and reletting costs, build-to-suit delays or cost overruns, leverage and refinancing needs, interest-rate exposure, property impairments, environmental liabilities, and REIT qualification. The company reported $48.0 million of variable-rate debt not covered by swaps at year-end.
- The company stated it was in compliance with applicable debt covenants at December 31, 2013. Management and the independent auditor reported effective internal control over financial reporting; the financial-statement audit opinion was unqualified.
Important facts for investors to verify
- Reconcile the 2013 common-shareholder loss and adjusted FFO to recurring property-level earnings, separating the 2012 NLS acquisition gain and 2013 impairment, loan-loss, and debt-satisfaction items.
- Review the debt maturity schedule, collateral and covenant terms, and the sources available to meet the 2014–2015 mortgage balloons.
- Assess dilution from the substantial 2013 equity issuance, remaining convertible securities, OP units, and the company’s future capital needs.
- Examine lease-expiration concentrations, tenant credit quality, occupancy trends, and the cost and timing of re-letting vacant or expiring space.
- Track completion, funding requirements, tenant leases, and realized yields for the build-to-suit pipeline and other announced 2014 investments.
- Confirm the sustainability of the expected $0.66 common dividend against operating cash flow, debt service, capital expenditures, and REIT distribution requirements.