Release Date: November 06, 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 outcomes with a same-store NOI growth of 5.4% in the third quarter.
- The company achieved significant rental increases, with second-generation leasing volume resulting in base and cash base rental increases of approximately 38% and 22%, respectively.
- LXP successfully leased a 250,000 square foot development project in Columbus, Ohio, contributing to its development portfolio progress.
- The company increased its exposure in the Sunbelt markets by acquiring a $34 million industrial facility in Savannah and is in diligence on additional assets in Houston and Atlanta.
- LXP announced an annualized dividend increase of $0.02 per common share, representing a 3.8% increase over the prior dividend, reflecting its commitment to returning value to shareholders.
Negative Points
- The national industrial market is experiencing rising vacancy rates, with a reported third-quarter national vacancy rate of 6.4%, up from 6.1% in the second quarter.
- LXP faces challenges with tenant move-outs, including a known move-out in the Richmond market affecting 1 million square feet.
- The company is dealing with a slow-moving transaction market, which impacts the pace of leasing and sales activities.
- LXP's portfolio has a significant mark-to-market opportunity, with current rents estimated to be approximately 23% below market through 2029, indicating potential underperformance in rental income.
- The company incurred one-time charges in 2024 for employee severance costs, impacting its financial results with an estimated $1.8 million charge.
Q & A Highlights
Q: Can you provide more information about the Ocala full building user and any updates on Greenville-Spartanburg and Indie properties?
A: We are still working with a tenant in Ocala, and while large leases take time, we are making progress. The building is available for lease, but we continue to work with the same tenant. In Greenville, we are closer to having the building leased, and in Indie, there's more activity now, so we are cautiously optimistic.
Q: Regarding the Phoenix land purchase option, is it related to the 100-acre deal with the data center operator? What about the remaining 320 acres?
A: The Phoenix land deal is about a 6% cash cap rate on the in-place rent. For the remaining 320 acres, we are focused on build-to-suit inquiries, though these decisions are taking longer, there has been good activity.
Q: What were the cap rates on the subsequent to quarter-end dispositions?
A: The four assets sold had a selling cap rate of 6%.
Q: Can you provide guidance on leasing spread expectations for 2025 and 2026, and any known move-outs?
A: For 2025, we have two known move-outs, and the remaining lease expirations are projected to be about 34% below market. In 2026, we have a sizable role of about 7 million square feet, with projections about 24% below market.
Q: What are your thoughts on the election results and their impact on the onshoring of manufacturing?
A: It's too early to say definitively, but historically, governments don't often undo spending programs. There is a focus on supporting more manufacturing in the country, which is consistent across political parties.
Q: What remains in the non-core asset bucket, and what is the dollar range left?
A: We have a handful of assets in markets like Kansas City, Philadelphia, and St. Louis that we may monetize over time. We will take it as it comes rather than assigning a specific dollar value.
Q: Why not retire the trust preferred securities, given they are the most expensive debt?
A: The trust preferred securities have a long-dated maturity with a good spread and are covenant-light, providing value. We swapped some to reduce costs and left $47 million floating, hoping to retire it at a discount to par.
Q: How are you planning to position the portfolio over time, focusing on the Sunbelt or market scale?
A: We are redeploying capital specifically into the Sunbelt, but we also like the lower Midwest markets. The portfolio is over 70% in the Sunbelt, which will continue to receive a disproportionate share of capital allocation.
Q: Is there any change in sentiment towards larger leases, and are you seeing increased activity?
A: There has been an increase in activity, with large leases signed recently in all markets where we have big box exposure. RFP traffic is up, and we have active prospects on all three properties, indicating positive momentum.
Q: What is the purchase price of the four assets, including Savannah and the other three planned acquisitions?
A: The aggregate purchase price is $158 million, with a total cap rate of 6%.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
