LXP Industrial Trust (filed as Lexington Realty Trust) — Q3 2020 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2020. Unaudited results; dollar amounts below are in millions except per-share data.
Business context
The REIT focused on single-tenant industrial properties. At quarter-end it reported interests in approximately 135 consolidated properties across 29 states, totaling 56.3 million square feet and approximately 98.9% leased. Industrial assets represented 88.5% of gross book value excluding assets held for sale. Its strategy emphasized acquiring leased industrial assets, selling non-core properties, and maintaining balance-sheet flexibility.
Financial performance
| Metric | Q3 2020 | Q3 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Gross revenue | $84.5 | $81.6 | $247.1 | $242.9 |
| Net income attributable to common shareholders | $40.3 | $141.6 | $74.1 | $189.7 |
| Common EPS, diluted | $0.15 | $0.59 | $0.28 | $0.81 |
| FFO per diluted share and unit | $0.25 | $0.18 | $0.63 | $0.58 |
| Adjusted Company FFO per diluted share and unit | $0.19 | $0.20 | $0.57 | $0.60 |
- Rental revenue rose 4.1% in Q3 and 1.8% for the nine-month period, principally reflecting acquisitions, partly offset by property sales. Same-store NOI increased 1.2% for the nine months.
- Net income fell sharply year over year, chiefly because 2019 included substantially larger property-sale gains: $140.5 million in Q3 2019 versus $20.9 million in Q3 2020; nine-month gains were $176.7 million versus $41.9 million.
- Q3 2020 results included a net debt-satisfaction gain of $17.6 million, including a gain on the Overland Park foreclosure, partly offset by a $10.1 million charge for repurchasing senior notes. Q3 2019 included $4.4 million of debt-satisfaction charges.
- Depreciation and amortization increased with acquisition activity. Interest and amortization expense declined to $13.6 million from $16.5 million in Q3 and to $42.6 million from $50.7 million for the nine months, reflecting lower mortgage debt and borrowing costs.
- Operating cash flow was $152.5 million for the nine months, versus $142.9 million. Investing used $370.6 million and financing provided $378.5 million; cash, cash equivalents and restricted cash ended at $289.6 million. The filing does not present a consolidated profit-margin measure.
Debt, liquidity and capital
- Cash and cash equivalents were $287.9 million at September 30, 2020, compared with $122.7 million at December 31, 2019. The $600 million revolving credit facility was undrawn, subject to covenant compliance; the company reported compliance with corporate-level financial covenants.
- Carrying amounts included $157.7 million of mortgages and notes payable, $297.8 million of term debt, $778.9 million of senior notes and $127.5 million of trust preferred securities. Separately, held-for-sale liabilities included $177.8 million of mortgages. Total reported liabilities were $1.71 billion.
- In August, the company issued $400 million of 2.70% senior notes due 2030 and used part of the proceeds to repurchase $112.3 million principal amount of 2023 and 2024 notes. It reported $18.4 million of property-specific mortgage balloon debt due in 2020, associated with a loan in default, and $10.4 million due in 2021.
- Equity issuance included a 17.25 million-share underwritten offering that generated approximately $164 million net and ATM proceeds of $61.0 million. A forward sale for approximately 3.9 million shares remained unsettled at quarter-end. Common dividends were $0.105 per share for Q3; a subsequent quarterly dividend of $0.1075 was declared.
Outlook, risks and unusual items
- Management said it could not estimate COVID-19’s long-term financial impact. It anticipated potential near-term operating cash-flow pressure from rent relief or tenant defaults, while stating that limited rent-relief requests were not expected to materially affect rental revenue. It cited industrial and tenant diversification as mitigants.
- During the first nine months, the company granted $0.1 million of rent relief and wrote off or reserved $1.4 million of deferred rent receivables, plus $0.2 million of accounts receivable. One nominal rent deferral was granted; management also described a two-year lease extension in exchange for rent relief.
- Acquisition activity had recovered from its earlier pandemic slowdown, but management said limited financing for potential property buyers had affected dispositions. Future earnings growth, absent acquisitions, was expected to rely mainly on rent adjustments, lower debt costs and expense control; management noted risks from economic conditions, interest rates, tenant defaults and pandemic-related restrictions.
- Five properties were classified as held for sale at quarter-end. Two office properties were conveyed to lenders in foreclosure, generating aggregate debt-satisfaction gains of $29.0 million for the nine months. A vacant industrial facility and a vacant office property also contributed to $7.8 million of impairment charges.
- Subsequent events included sales of three properties for approximately $39.6 million, a planned $72 million Phoenix build-to-suit industrial project with a 15-year net lease, and the higher common dividend.
- Management assessed disclosure controls as effective and reported no material change in internal control over financial reporting. It reported no material change to previously disclosed risk factors; ordinary-course legal proceedings were not expected to have a material aggregate adverse effect.
Investor verification priorities
- Confirm rent collections, tenant credit quality, and any further COVID-related concessions or receivable write-offs.
- Track the defaulted $18.4 million mortgage, the additional property-specific debt maturities, and disposition progress for held-for-sale properties.
- Assess whether acquisitions and development spending support recurring FFO, distinguishing operating performance from sale and debt-satisfaction gains.
- Review the impact of share issuance and unsettled forward sales on dilution, per-share FFO and dividend coverage.
- Monitor the 2030 note proceeds’ use, refinancing and interest-rate exposure, including the effect of swap liabilities and LIBOR transition.