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LXP Industrial Trust (NYSE: LXP) - Solid Fundamentals and Promising Development Pipeline
Published on September 24, 2024 | Ticker: LXP

LXP Industrial Trust, a leading real estate investment trust (REIT) focused on Class A warehouse and distribution properties, has demonstrated resilience in the face of a challenging macroeconomic environment. With a strong portfolio, strategic development initiatives, and prudent financial management, the company is well-positioned to navigate the current market conditions and capitalize on future growth opportunities.

Business Overview

LXP Industrial Trust is a diversified REIT that owns a portfolio of equity investments focused on single-tenant industrial properties. As of March 31, 2024, the company had equity ownership interests in approximately 118 consolidated real estate properties, located in 18 states and containing an aggregate of approximately 57.3 million square feet of space, approximately 95.3% of which was leased. The company's warehouse/distribution portfolio is primarily focused in its target markets within the Sunbelt and Midwest regions, which it believes offer attractive growth prospects.

Financials

For the full year 2023, LXP reported annual net income of $23,863,000 and annual revenue of $340,503,000. The company's annual operating cash flow was $209,446,000, and its annual free cash flow was $191,509,000. These strong financial results demonstrate the company's ability to generate consistent cash flows and maintain a healthy balance sheet.

In the first quarter of 2024, LXP reported revenue of $86,251,000, a slight increase from the $85,075,000 reported in the same period of 2023. The company's net income for the quarter was a loss of $555,000, compared to a gain of $11,315,000 in the first quarter of 2023. The decrease in net income was primarily due to higher interest and amortization expenses, as well as a decrease in gains on sales of properties.

Leasing Activity and Development Pipeline

During the first quarter of 2024, LXP placed in service one warehouse/distribution facility containing 488,400 square feet in the Phoenix, Arizona market, which was fully leased to a single tenant. The company also placed two vacant warehouse/distribution facilities containing an aggregate of 2.1 million square feet into service one year after the completion of base building construction.

In addition, LXP acquired a 59.1-acre land parcel and commenced development of a 625,200 square foot built-to-suit warehouse/distribution facility in the Greenville/Spartanburg, South Carolina market, which is subject to a 12-year lease, estimated to commence in January 2025. The company invested an aggregate of $25.5 million in development activities during the first quarter of 2024.

Leasing activity has been a focus for LXP, with the company entering into an amendment for an extended lease encompassing 119,295 square feet during the quarter. The average fixed rent on the lease was $6.59 per square foot, compared to the previous average fixed rent of $5.15 per square foot, representing a 28% increase.

Guidance and Outlook

LXP has provided guidance for its 2024 same-store NOI, which it now expects to be in the range of 4% to 5%, an increase from its previous range of 3.5% to 4.5%. This improvement is driven by the company's recent leasing activity and the continued stabilization of its development pipeline.

Additionally, the company estimates that its below-market rents through 2029 could increase initial cash rent by $36 million, or $0.12 per share, while the stabilization of its development pipeline is estimated to produce initial cash rent of $20 million, or $0.07 per share, as the projects lease up.

Liquidity

LXP maintains a strong balance sheet, with a net debt to adjusted EBITDA ratio of 6.1x as of March 31, 2024. The company's consolidated debt outstanding was approximately $1.8 billion at quarter-end, with a weighted average interest rate of 3.87% and a weighted average term to maturity of 5.5 years. Notably, the company's fixed-rate debt percentage was approximately 93% at the end of the first quarter.

The company has good liquidity, with no borrowings outstanding on its $600 million unsecured revolving credit facility as of March 31, 2024. LXP's focus on maintaining a healthy balance sheet and ample liquidity positions it well to navigate the current market environment and pursue strategic growth opportunities.

Risks and Challenges

While LXP has demonstrated resilience, the company is not immune to the broader macroeconomic challenges facing the industrial real estate sector. Factors such as rising interest rates, supply chain disruptions, and potential softening in demand could impact the company's operations and financial performance.

Additionally, the company's development pipeline and leasing activity are subject to execution risks, and any delays or setbacks could affect its growth trajectory. LXP's ability to successfully navigate these risks and capitalize on its strengths will be crucial in the coming years.

Conclusion

LXP Industrial Trust has established itself as a leading player in the industrial real estate market, with a strong portfolio, strategic development initiatives, and prudent financial management. The company's solid fundamentals, including its robust leasing activity, promising development pipeline, and healthy balance sheet, position it well to navigate the current market environment and capitalize on future growth opportunities. As LXP continues to execute its strategic plan, investors should closely monitor the company's progress and its ability to deliver sustainable long-term value.

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