Release Date: July 31, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- LXP Industrial Trust (LXP, Financial) reported strong leasing activity with 2.7 million square feet leased, achieving rental increases of 44.5% and 44% respectively.
- The company successfully completed its portfolio transformation by selling its remaining office assets, positioning itself as a pure play industrial REIT.
- LXP raised its same-store NOI growth expectations to a range of 4.5% to 5.5%, reflecting robust performance.
- The company is in advanced negotiations for an additional 1.7 million square feet of leasing, indicating continued strong demand.
- LXP's balance sheet remains strong with a net debt to adjusted EBITDA ratio of 6.2 times, and the company is focused on reducing leverage further.
Negative Points
- Interest expenses are expected to increase in 2025 due to the expiration of swaps on the term loan, impacting adjusted company FFO by approximately $0.02 per diluted share.
- The company faces potential vacancies with known tenant move-outs in 2024 and 2025, which could impact occupancy rates.
- LXP's G&A expenses for 2024 are expected to be higher due to one-time charges related to employee severance and CFO transition costs.
- The development pipeline's stabilization is still a few quarters away, which may continue to drag on earnings growth.
- The company is exploring asset sales in non-core markets, which could lead to potential dilution if not managed carefully.
Q & A Highlights
Q: Can you provide more details on the development leasing pipeline, specifically the 1.7 million square feet mentioned?
A: We are close to securing a tenant for our Ocala facility and have identified a tenant for our Columbus facility. We are also responding to full building RFPs for our Indianapolis facility and have interest in our South Shore Tampa and Greenville Spartanburg facilities. We are optimistic about Ocala and Columbus but are still working on the others. (James Dudley, Executive Vice President, Director - Asset Management)
Q: What are the expected yields for the developments given current market conditions?
A: We are maintaining our previous guidance of 6% to 6.5% yields for these developments. (Brendan Mullinix, Executive Vice President, Chief Investment Officer)
Q: Has the same-store NOI guidance changed from the previous 4% to 5%?
A: Yes, we have increased the guidance to a range of 4.5% to 5.5%. (Beth Boulerice, Chief Financial Officer, Executive Vice President, Treasurer)
Q: Can you clarify the G&A guidance for 2024 and its impact on adjusted company FFO?
A: The G&A guidance is now $39 to $41 million, up from the previous $36.5 to $38.5 million. The $1.7 million in severance charges are one-time and will not impact adjusted company FFO. We also anticipate $1 million in expenses related to the CFO transition. (Beth Boulerice, Chief Financial Officer, Executive Vice President, Treasurer)
Q: What is the strategy for asset dispositions, and how does it relate to market scale?
A: We are focusing on markets where we lack scale and do not plan to expand. The disposition market has improved, and we are exploring opportunities to harvest value. (T. Wilson Eglin, Chairman of the Board of Trustees, President, Chief Executive Officer)
Q: How are you managing interest expense given the floating rate exposure and development stabilization timeline?
A: We are exploring options such as fixed-rate bonds or swaps and may pay down a portion of the term loan. Interest expense is expected to increase by about $0.02 per share in 2025. (Beth Boulerice, Chief Financial Officer, Executive Vice President, Treasurer)
Q: Are there plans to wind down the remaining office property stakes?
A: Yes, the office joint venture is in a liquidating mode, and we are winding it down as market conditions allow. (T. Wilson Eglin, Chairman of the Board of Trustees, President, Chief Executive Officer)
Q: What is the potential FFO upside from leasing the Ocala and Columbus properties?
A: Leasing these properties could add approximately $0.03 to FFO. (Beth Boulerice, Chief Financial Officer, Executive Vice President, Treasurer)
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
