LXP Industrial Trust (filing registrant: Lexington Realty Trust) — FY2012 Form 10-K
The filing covers the fiscal year ended December 31, 2012, with comparative results for 2011 and 2010. The registrant reported a geographically diversified portfolio of approximately 220 consolidated properties across 41 states, totaling 41.2 million square feet and 97.3% leased. Most properties were single-tenant office or industrial assets under net leases.
Financial and operating performance
| Metric | FY2012 | FY2011 |
|---|---|---|
| Gross revenue | $344.9 million | $313.8 million |
| Rental revenue | $313.1 million | $280.4 million |
| Net income (loss) attributable to common shareholders | $156.8 million | $(103.7) million |
| Basic earnings (loss) per common share | $0.99 | $(0.68) |
| Cash from operating activities | $163.8 million | $180.1 million |
| Same-store cash NOI | $243.6 million | $245.8 million |
Revenue increased about 9.9%, primarily from acquisitions, including NLS, higher occupancy at the Transamerica Tower, and a new Orlando lease. Same-store cash NOI declined 0.9%; same-store occupancy improved to 97.0% from 96.5%. The filing reports net income of $184.6 million for 2012, but results include a $167.9 million non-cash gain from acquiring the remaining interest in NLS. Company FFO, as adjusted, was $180.6 million, or $0.98 per share, compared with $170.0 million, or $0.97 per share, in 2011; this is a company-defined non-GAAP measure.
At year-end, total assets were $3.42 billion, total equity $1.33 billion, and debt approximately $1.88 billion, with a weighted-average interest rate of about 5.4%. Cash and cash equivalents were $34.0 million. Operating cash flow exceeded cash dividends paid to common and preferred shareholders of $103.3 million, though cash flow from operations decreased from 2011.
Fourth-quarter 2012 revenue was $95.5 million; net loss was $1.8 million and loss attributable to common shareholders was $7.0 million, or $0.04 per basic and diluted share. Results varied sharply during the year: third-quarter net income included much of the NLS acquisition gain.
Material changes and capital activity
- Consolidated debt increased $210.5 million during 2012, primarily following the NLS acquisition; the weighted-average interest rate declined approximately 34 basis points.
- The company acquired the remaining NLS interest for $9.4 million plus assumed liabilities and consolidated NLS from September 1, 2012. NLS had approximately 41 properties, 5.8 million square feet, and $258 million of consolidated debt at acquisition.
- Property investment activity included $76.2 million of acquisitions and $107.3 million of completed build-to-suit transactions. The company reported $241.1 million of 2012 property investments with an approximately 16-year weighted-average lease term and 8.5% initial cap rate.
- Property dispositions generated $181.4 million in gross proceeds. The company issued 18.3 million common shares and raised approximately $164.4 million net, and repurchased all outstanding Series B preferred shares and approximately 35,000 Series C shares for about $70 million.
- At December 31, 2012, property-specific balloon payments were $238.4 million due in 2013 and $251.0 million due in 2014. The company reported $296.3 million available on its then-secured revolving facility, net of letters of credit.
Outlook, risks, and unusual items
Management said it expected continued acquisition activity in 2013, with a pipeline focused largely on build-to-suit projects, but cautioned that proposed transactions might not close or succeed. Four ongoing build-to-suit commitments had an aggregate expected maximum contribution of $136.5 million, of which $68.9 million had been invested by year-end. Management expected renewal rents to remain below expiring rents and leasing costs to remain elevated. It expected an aggregate 2013 common dividend of $0.60 per share, subject to board approval and actual conditions.
Subsequent to year-end, the company converted $35 million of convertible notes into approximately 5.0 million common shares, launched a $100 million at-the-market share program and had raised approximately $36.9 million gross by the filing date. It also refinanced the $300 million secured revolver with a $300 million unsecured facility maturing in 2017, extendable to 2018, and obtained a $250 million unsecured term loan maturing in 2018. These subsequent financings and equity proceeds are not year-end cash or debt balances.
Key risks include single-tenant lease expirations and tenant defaults, refinancing substantial property-level balloon maturities, leverage and interest-rate exposure, vacancies and re-leasing costs, construction delays or overruns, loan delinquencies, environmental liabilities, and dependence on continued access to debt and equity markets. One $21.9 million Schaumburg mortgage loan was in default and foreclosure proceedings had begun; management believed collateral value exceeded the investment. A Westmont property tenant had exercised an option to terminate its lease effective November 2013, while the related note receivable was $26.8 million. The company also reported foreclosures of vacant properties in Tulsa and Clive during 2012. A $2.8 million litigation reserve was recorded and the matter was settled for $2.775 million. Management reported no known environmental condition expected to have a material adverse effect; ordinary-course legal proceedings were not expected, in aggregate, to be material.
The independent auditor issued unqualified opinions on the financial statements and internal control over financial reporting; management also concluded controls were effective at year-end.
Most important facts for investors to verify
- How much of 2012 earnings and the year-over-year improvement is attributable to the one-time $167.9 million NLS remeasurement gain, versus recurring property operations and adjusted FFO.
- Whether the company can refinance or otherwise address the $238.4 million and $251.0 million property-level balloon maturities due in 2013 and 2014, and the resulting borrowing costs and collateral requirements.
- Actual leasing, occupancy, tenant-improvement and commission outcomes as leases expire, particularly given lower renewal rents and the office portfolio’s 4.5-year weighted-average remaining lease term.
- Performance and collectability of the defaulted Schaumburg loan and the Westmont note, including the effects of foreclosure, tenant termination, and any required tenant-improvement funding.
- Post-year-end share issuance, note conversions, unsecured financing terms, and their effects on dilution, leverage, liquidity, and the sustainability of the proposed $0.60 annual dividend.