UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
| Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 | |||||
For the quarterly period ended March 31, 2024 .
or
| Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 | |||||
For the transition period from _________________ to ________________
Commission File Number 1-12386
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of incorporation of organization) | (I.R.S. Employer Identification No.) | ||||
(Address of principal executive offices) (zip code)
(212 ) 692-7200
(Registrant's telephone number, including area code)
(Former Address of principal executive offices) (zip code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||||
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| ☒ | Accelerated filer | ☐ | Non-accelerated filer | ☐ | Smaller reporting company | Emerging growth company | ||||||||||||||||||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of the latest practicable date: 294,314,556 common shares of beneficial interest, par value $0.0001 per share, as of May 1, 2024.
TABLE OF CONTENTS
| PART I. — FINANCIAL INFORMATION | ||||||||
ITEM 1. Financial Statements (Unaudited) | ||||||||
| PART II — OTHER INFORMATION | ||||||||
WHERE YOU CAN FIND MORE INFORMATION:
We file and furnish annual, quarterly and current reports, proxy statements and other information with the Securities and Exchange Commission, which we refer to as the SEC. We file and furnish information electronically with the SEC. The SEC maintains an Internet site that contains reports, proxy and information statements and other information regarding issuers that file or furnish electronically with the SEC. The address of the SEC's Internet site is http://www.sec.gov. We also maintain a web site at http://www.lxp.com through which you can obtain copies of documents that we file or furnish with the SEC. The contents of that web site are not incorporated by reference in or otherwise a part of this Quarterly Report on Form 10-Q or any other document that we file or furnish with the SEC.
2
PART I. - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
LXP INDUSTRIAL TRUST AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited and in thousands, except share and per share data)
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| March 31, 2024 | December 31, 2023 | ||||||||||
| Assets: | |||||||||||
| Real estate, at cost | $ | $ | |||||||||
| Real estate - intangible assets | |||||||||||
| Land held for development | |||||||||||
| Investments in real estate under construction | |||||||||||
| Real estate, gross | |||||||||||
| Less: accumulated depreciation and amortization | |||||||||||
| Real estate, net | |||||||||||
| Assets held for sale | |||||||||||
| Right-of-use assets, net | |||||||||||
| Cash and cash equivalents | |||||||||||
| Restricted cash | |||||||||||
| Short term investments | |||||||||||
| Investments in non-consolidated entities | |||||||||||
| Deferred expenses, net | |||||||||||
Investment in a sales-type lease, net (allowance for credit loss $ | |||||||||||
| Rent receivable – current | |||||||||||
| Rent receivable – deferred | |||||||||||
| Other assets | |||||||||||
| Total assets | $ | $ | |||||||||
| Liabilities and Equity: | |||||||||||
| Liabilities: | |||||||||||
| Mortgages and notes payable, net | $ | $ | |||||||||
| Term loan payable, net | |||||||||||
| Senior notes payable, net | |||||||||||
| Trust preferred securities, net | |||||||||||
| Dividends payable | |||||||||||
| Liabilities held for sale | |||||||||||
| Operating lease liabilities | |||||||||||
| Accounts payable and other liabilities | |||||||||||
| Accrued interest payable | |||||||||||
| Deferred revenue - including below-market leases, net | |||||||||||
| Prepaid rent | |||||||||||
| Total liabilities | |||||||||||
| Commitments and contingencies | |||||||||||
| Equity: | |||||||||||
Preferred shares, par value $ | |||||||||||
Series C Cumulative Convertible Preferred, liquidation preference $ | |||||||||||
Common shares, par value $ | |||||||||||
| Additional paid-in-capital | |||||||||||
| Accumulated distributions in excess of net income | ( | ( | |||||||||
Accumulated other comprehensive income | |||||||||||
| Total shareholders’ equity | |||||||||||
| Noncontrolling interests | |||||||||||
| Total equity | |||||||||||
| Total liabilities and equity | $ | $ | |||||||||
3
LXP INDUSTRIAL TRUST AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited and in thousands, except share and per share data)
| Three Months Ended March 31, | |||||||||||
| 2024 | 2023 | ||||||||||
| Gross revenues: | |||||||||||
| Rental revenue | $ | $ | |||||||||
| Other revenue | |||||||||||
| Total gross revenues | |||||||||||
| Expense applicable to revenues: | |||||||||||
| Depreciation and amortization | ( | ( | |||||||||
| Property operating | ( | ( | |||||||||
| General and administrative | ( | ( | |||||||||
| Non-operating income | |||||||||||
| Interest and amortization expense | ( | ( | |||||||||
| Impairment charges | ( | ||||||||||
| Change in allowance for credit loss | ( | ||||||||||
| Gains on sales of properties | |||||||||||
| Income before provision for income taxes and equity in earnings (losses) of non-consolidated entities | |||||||||||
| Provision for income taxes | ( | ( | |||||||||
| Equity in earnings (losses) of non-consolidated entities | ( | ||||||||||
| Net income (loss) | ( | ||||||||||
| Less (net income) loss attributable to noncontrolling interests | ( | ||||||||||
| Net income (loss) attributable to LXP Industrial Trust shareholders | ( | ||||||||||
| Dividends attributable to preferred shares – Series C | ( | ( | |||||||||
| Allocation to participating securities | ( | ( | |||||||||
| Net income (loss) attributable to common shareholders | $ | ( | $ | ||||||||
| Net income (loss) attributable to common shareholders - per common share basic | $ | ( | $ | ||||||||
| Weighted-average common shares outstanding – basic | |||||||||||
| Net income (loss) attributable to common shareholders - per common share diluted | $ | ( | $ | ||||||||
Weighted-average common shares outstanding – diluted | |||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
4
LXP INDUSTRIAL TRUST AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited and in thousands)
| Three Months Ended March 31, | |||||||||||
| 2024 | 2023 | ||||||||||
| Net income (loss) | $ | ( | $ | ||||||||
| Other comprehensive income (loss): | |||||||||||
| Change in unrealized loss on interest rate swaps, net | ( | ( | |||||||||
| Company's share of other comprehensive income (loss) of non-consolidated entities | ( | ||||||||||
| Other comprehensive loss | ( | ( | |||||||||
| Comprehensive income (loss) | ( | ||||||||||
| Comprehensive (income) loss attributable to noncontrolling interests | ( | ||||||||||
| Comprehensive income (loss) attributable to LXP Industrial Trust shareholders | $ | ( | $ | ||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
5
LXP INDUSTRIAL TRUST AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(Unaudited and in thousands, except share and per share data)
| LXP Industrial Trust Shareholders | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Three months ended March 31, 2024 | Total | Number of Preferred Shares | Preferred Shares | Number of Common Shares | Common Shares | Additional Paid-in-Capital | Accumulated Distributions in Excess of Net Income | Accumulated Other Comprehensive Income/(Loss) | Noncontrolling Interests | ||||||||||||||||||||||||||||||||||||||||||||
Balance December 31, 2023 | $ | $ | $ | $ | $ | ( | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||
| Issuance of partnership interest in real estate | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common shares and deferred compensation amortization, net | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||
| Repurchase of common shares to settle tax obligations | ( | — | — | ( | — | ( | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
| Forfeiture of employee common shares | — | — | — | ( | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
| Purchase of noncontrolling interest in consolidated joint venture | ( | — | — | — | — | ( | — | — | ( | ||||||||||||||||||||||||||||||||||||||||||||
Dividends ($ | ( | — | — | — | — | — | ( | — | ( | ||||||||||||||||||||||||||||||||||||||||||||
| Net loss | ( | — | — | — | — | — | ( | — | ( | ||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive loss | ( | — | — | — | — | — | — | ( | — | ||||||||||||||||||||||||||||||||||||||||||||
| Company's share of other comprehensive income of non-consolidated entities | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||
| Balance March 31, 2024 | $ | $ | $ | $ | $ | ( | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||
Three Months Ended March 31, 2023 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance December 31, 2022 | $ | $ | $ | $ | $ | ( | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||
| Issuance of partnership interest in real estate | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||
| Redemption of noncontrolling OP units for common shares | — | — | — | — | — | ( | |||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common shares and deferred compensation amortization, net | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||
| Repurchase of common shares to settle tax obligations | ( | — | — | ( | — | ( | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
| Forfeiture of employee common shares | — | — | — | ( | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
Dividends/distributions ($ | ( | — | — | — | — | — | ( | — | ( | ||||||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive loss | ( | — | — | — | — | — | — | ( | — | ||||||||||||||||||||||||||||||||||||||||||||
| Company's share of other comprehensive loss of non-consolidated entities | ( | — | — | — | — | — | — | ( | — | ||||||||||||||||||||||||||||||||||||||||||||
| Balance March 31, 2023 | $ | $ | $ | $ | $ | ( | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||
6
LXP INDUSTRIAL TRUST AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited and in thousands)
| Three Months Ended March 31, | |||||||||||
| 2024 | 2023 | ||||||||||
| Net cash provided by operating activities: | $ | $ | |||||||||
| Cash flows from investing activities: | |||||||||||
| Investment in real estate under construction | ( | ( | |||||||||
| Capital expenditures | ( | ( | |||||||||
| Net proceeds from sale of properties | |||||||||||
| Principal payments on loans receivable | |||||||||||
| Investments in non-consolidated entities | ( | ( | |||||||||
| Distributions from non-consolidated entities in excess of accumulated earnings | |||||||||||
| Deferred leasing costs | ( | ( | |||||||||
| Change in real estate deposits, net | ( | ( | |||||||||
| Net cash used in investing activities | ( | ( | |||||||||
| Cash flows from financing activities: | |||||||||||
| Dividends to common and preferred shareholders | ( | ( | |||||||||
| Principal amortization payments | ( | ( | |||||||||
| Revolving credit facility borrowings | |||||||||||
| Revolving credit facility payments | ( | ||||||||||
| Cash contributions from noncontrolling interests | |||||||||||
| Cash distributions to noncontrolling interests | ( | ( | |||||||||
| Purchase of noncontrolling interest | ( | ||||||||||
| Issuance of common shares, net of costs and repurchases to settle tax obligations | ( | ( | |||||||||
| Net cash used in financing activities | ( | ( | |||||||||
| Change in cash, cash equivalents and restricted cash | ( | ( | |||||||||
| Cash, cash equivalents and restricted cash, at beginning of period | |||||||||||
| Cash, cash equivalents and restricted cash, at end of period | $ | $ | |||||||||
| Reconciliation of cash, cash equivalents and restricted cash: | |||||||||||
| Cash and cash equivalents at beginning of period | $ | $ | |||||||||
| Restricted cash at beginning of period | |||||||||||
| Cash, cash equivalents and restricted cash at beginning of period | $ | $ | |||||||||
| Cash and cash equivalents at end of period | $ | $ | |||||||||
| Restricted cash at end of period | |||||||||||
| Cash, cash equivalents and restricted cash at end of period | $ | $ | |||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
7
LXP INDUSTRIAL TRUST AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2024 and 2023
(Unaudited and dollars in thousands, except share/unit and per share/unit data)
(1)The Company and Financial Statement Presentation
LXP Industrial Trust (together with its consolidated subsidiaries, except when the context only applies to the parent entity, the “Company”) is a Maryland real estate investment trust (“REIT”) that owns a portfolio of equity investments focused on single-tenant industrial properties.
As of March 31, 2024, the Company had ownership interests in approximately 118 consolidated real estate properties, located in 18 states. The properties in which the Company has an interest are primarily net leased to tenants in various industries.
The Company believes it has qualified as a REIT under the Internal Revenue Code of 1986, as amended (the “Code”). Accordingly, the Company will not be subject to federal income tax, provided that distributions to its shareholders equal at least the amount of its REIT taxable income as defined under the Code. The Company is permitted to participate in certain activities from which it was previously precluded in order to maintain its qualification as a REIT, so long as these activities are conducted in entities which elect to be treated as taxable REIT subsidiaries (“TRS”) under the Code. As such, the TRS are subject to federal income taxes on the income from these activities.
The Company conducts its operations indirectly through (1) property owner subsidiaries, which are single purpose entities, (2) a wholly-owned TRS, Lexington Realty Advisors, Inc., and (3) joint ventures. Property owner subsidiaries are landlords under leases for properties in which the Company has an interest and/or borrowers under loan agreements secured by properties in which the Company has an interest and lender subsidiaries are lenders under loan agreements where the Company made an investment in a loan asset, but in all cases are separate and distinct legal entities. Each property owner subsidiary is a separate legal entity that maintains separate books and records. The assets and credit of each property owner subsidiary with a property subject to a mortgage loan are not available to creditors to satisfy the debt and other obligations of any other person, including any other property owner subsidiary or any other affiliate. Consolidated entities that are not property owner subsidiaries do not directly own any of the assets of a property owner subsidiary (or the general partner, member or managing member of such property owner subsidiary), but merely hold partnership, membership or beneficial interests therein, which interests are subordinate to the claims of such property owner subsidiary's (or its general partner's, member's or managing member's) creditors.
The unaudited condensed consolidated financial statements contained in this Quarterly Report on Form 10-Q (this “Quarterly Report”) for the three months ended March 31, 2024 have been prepared by the Company in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and the applicable rules and regulations of the Securities and Exchange Commission (“SEC”). Accordingly, they do not include all information and footnotes required by GAAP for complete financial statements. However, in the opinion of management, the interim financial statements include all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of the results of the periods presented. Interim results are not necessarily indicative of the results that may be expected for the full year. These unaudited condensed consolidated financial statements should be read in conjunction with the Company's audited consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2023 filed with the SEC on February 15, 2024 (“Annual Report”).
8
LXP INDUSTRIAL TRUST AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2024 and 2023
(Unaudited and dollars in thousands, except share/unit and per share/unit data)
As of March 31, 2024, the Company had interests in six consolidated joint ventures with developers, consisting of four development projects and two land joint ventures with ownership interests ranging from 80 % to 95.5 %. Each joint venture acquired land parcels for industrial development. The Company determined that the joint ventures are variable interest entities in accordance with the applicable accounting guidance. The Company concluded that it is the primary beneficiary in each of the joint ventures and as such, the joint ventures' operations are consolidated in the Company’s unaudited condensed consolidated financial statements.
In addition, the Company is the primary beneficiary of certain other VIEs as it has a controlling financial interest in these entities.
The assets of each VIE are only available to satisfy such VIE's respective liabilities. Below is a summary of selected financial data of consolidated VIEs for which the Company is the primary beneficiary included in the unaudited condensed consolidated balance sheets as of March 31, 2024 and December 31, 2023:
| March 31, 2024 | December 31, 2023 | ||||||||||
| Real estate, net | $ | $ | |||||||||
| Total assets | $ | $ | |||||||||
| Total liabilities | $ | $ | |||||||||
Use of Estimates. Management has made a number of significant estimates and assumptions relating to the reporting of assets and liabilities, the disclosure of contingent assets and liabilities and the reported amounts of revenues and expenses to prepare these unaudited condensed consolidated financial statements in conformity with GAAP. These estimates and assumptions are based on management's best estimates and judgment. Management evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors, including the current economic environment. Management adjusts such estimates when facts and circumstances dictate. The most significant estimates made include the recoverability of current and deferred accounts receivable, allocation of property purchase price to tangible and intangible assets acquired and liabilities assumed, the determination of VIEs and which entities should be consolidated, the determination of impairment of long-lived assets and equity method investments, valuation of derivative financial instruments, valuation of awards granted under compensation plans, the determination of the incremental borrowing rate for leases where the Company is the lessee, the determination of the term and fair value of sales-type leases, the estimated credit losses for investments in sales-type leases and the useful lives of long-lived assets. Actual results could differ materially from those estimates.
Recently Issued Accounting Guidance. In November 2023, the Financial Accounting Standards Board ("FASB") issued ASU 2023-07, Improvements to Reportable Segment Disclosures (Topic 280). ASU 2023-07 requires disclosure of significant segment expenses that are regularly provided to the chief operating decision maker (“CODM”) and included within the segment measure of profit or loss, an amount and description of its composition for other segment items to reconcile to segment profit or loss, and the title and position of the entity's CODM. ASU 2023-07 will be effective retrospectively for fiscal years beginning after December 15, 2023 and interim periods beginning after December 15, 2024. The Company will continue to evaluate the impact of the guidance on its consolidated financial statements.
In December 2023, the FASB issued ASU 2023-09, Improvements to Income Tax Disclosures that requires public companies to annually (1) disclose specific categories in the rate reconciliation and (2) provide additional information for reconciling items that meet a quantitative threshold (if the effect of those reconciling items is equal to or greater than five percent of the amount computed by multiplying pretax income or loss by the applicable statutory income tax rate). The ASU is effective for annual periods beginning after December 15, 2024. The Company is currently evaluating the impact of the guidance until it becomes effective.
In March 2024, the U.S. Securities and Exchange Commission ("SEC") adopted the final rule under SEC Release No. 33-11275, The Enhancement and Standardization of Climate-Related Disclosures for Investors. This rule will require
9
LXP INDUSTRIAL TRUST AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2024 and 2023
(Unaudited and dollars in thousands, except share/unit and per share/unit data)
registrants to disclose certain climate-related information in registration statements and annual reports. In April 2024, the SEC voluntarily stayed the effectiveness of the new rules pending related litigation. If the stay is lifted and the effective times are unchanged, certain of the disclosure requirements will begin to apply to the Company's fiscal year beginning January 1, 2025. The Company is currently evaluating the final rule to determine its impact on the Company's disclosures.
(2)Earnings Per Share
A portion of the Company's non-vested share-based payment awards are considered participating securities and as such, the Company is required to use the two-class method for the computation of basic and diluted earnings per share. Under the two-class computation method, net losses are not allocated to participating securities unless the holder of the security has a contractual obligation to share in the losses. The non-vested share-based payment awards are not allocated losses as the awards do not have a contractual obligation to share in losses of the Company.
The following is a reconciliation of the numerators and denominators of the basic and diluted earnings per share computations for the three months ended March 31, 2024 and 2023:
| Three Months Ended March 31, | ||||||||||||||
| 2024 | 2023 | |||||||||||||
| BASIC | ||||||||||||||
| Net income (loss) attributable to common shareholders | $ | ( | $ | |||||||||||
Weighted-average number of common shares outstanding - basic | ||||||||||||||
| Net income (loss) attributable to common shareholders - per common share basic | $ | ( | $ | |||||||||||
| DILUTED | ||||||||||||||
| Net income (loss) attributable to common shareholders - basic | $ | ( | $ | |||||||||||
Impact of assumed conversions | ||||||||||||||
| Net income (loss) attributable to common shareholders | $ | ( | $ | |||||||||||
Weighted-average common shares outstanding - basic | ||||||||||||||
Effect of dilutive securities: | ||||||||||||||
| Unvested share-based payment awards | ||||||||||||||
| Operating partnership units | ||||||||||||||
Weighted-average common shares outstanding - diluted | ||||||||||||||
| Net income (loss) attributable to common shareholders - per common share diluted | $ | ( | $ | |||||||||||
For per common share amounts, generally all incremental shares are considered anti-dilutive for periods that have a loss from continuing operations attributable to common shareholders. In addition, other common share equivalents may be anti-dilutive in certain periods.
Calculation of dilutive earnings requires certain potentially dilutive shares to be excluded when the inclusion of such shares would be anti-dilutive. The following table summarizes the potentially dilutive shares excluded from the dilutive earnings per share calculation as the inclusion of such shares would be anti-dilutive:
10
LXP INDUSTRIAL TRUST AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2024 and 2023
(Unaudited and dollars in thousands, except share/unit and per share/unit data)
| Three Months Ended March 31, | |||||||||||
| 2024 | 2023 | ||||||||||
Preferred shares - Series C | |||||||||||
(3)Investments in Real Estate
The Company placed in service the following warehouse/distribution facilities during the three months ended March 31, 2024:
| Market (% owned) | Placed in Service Date | Initial Cost Basis(1) | Lease Expiration Date | Land | Building and Improvements | |||||||||||||||
Phoenix, AZ ( | February 2024 | $ | 01/2031 | $ | $ | |||||||||||||||
Central Florida ( | February 2024 | N/A | ||||||||||||||||||
Indianapolis, IN ( | February 2024 | N/A | ||||||||||||||||||
| $ | $ | $ | ||||||||||||||||||
(1) Initial cost basis excludes certain remaining costs, such as tenant improvements, lease costs and developer fee or developer partner promote, if any.
(2) The warehouse/distribution facility was placed in service vacant one year after the completion of base building construction in accordance with the Company's policy.
As of March 31, 2024, the details of the development arrangements outstanding are as follows (in $000's, except square feet):
| Project (% owned) | # of Buildings | Market | Estimated Sq. Ft. | Estimated Project Cost(1) | GAAP Investment Balance as of 3/31/2024(2) | LXP Amount Funded as of 3/31/2024(3) | Actual/Estimated Base Building Completion Date | % Leased as of 3/31/2024 | ||||||||||||||||||
| Build-to-Suit Development Projects Leased | ||||||||||||||||||||||||||
Piedmont ( | Greenville-Spartanburg, SC | $ | $ | $ | 4Q 2024 | % | ||||||||||||||||||||
Development Projects Available for Lease(5) | ||||||||||||||||||||||||||
Smith Farms ( | Greenville-Spartanburg, SC | $ | $ | $ | 2Q 2023 | % | ||||||||||||||||||||
South Shore ( | Central Florida | 2Q 2023 - 3Q 2023 | % | |||||||||||||||||||||||
Etna Building D ( | Columbus, OH | 1Q 2024 | % | |||||||||||||||||||||||
| $ | $ | $ | ||||||||||||||||||||||||
| $ | $ | $ | ||||||||||||||||||||||||
(1) Estimated project cost includes estimated tenant improvements and leasing costs.
(2) Excludes leasing costs and incomplete costs.
(3) Excludes noncontrolling interests' share.
(4) During the three months ended March 31, 2024, the Company acquired a 59.1 acre land parcel for a purchase price of $3,416 and commenced construction of a build-to-suit warehouse/distribution facility subject to a 12 -year lease, which is estimated to commence in January 2025.
(5) Estimated project cost excludes potential developer fee or partner promote, if any.
(6) During the fourth quarter of 2023, a 57,690 square foot portion of the project, representing 21 % of the total project, was occupied by the tenant and placed in service.
As of March 31, 2024, the Company's aggregate investment in the ongoing development arrangements was $153,181 . This amount included capitalized interest of $1,211 for the three months ended March 31, 2024 and is presented as investments in real estate under construction in the accompanying unaudited condensed consolidated balance sheet. For the three months ended March 31, 2023, capitalized interest for development arrangements was $1,794 .
11
LXP INDUSTRIAL TRUST AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2024 and 2023
(Unaudited and dollars in thousands, except share/unit and per share/unit data)
As of March 31, 2024, the details of the land held for industrial development are as follows (in $000's, except acres):
| Project (% owned) | Market | Approx. Developable Acres | GAAP Investment Balance as of 3/31/2024 | LXP Amount Funded as of 3/31/2024 (1) | ||||||||||||||||||||||
Reems & Olive ( | Phoenix, AZ | $ | $ | |||||||||||||||||||||||
Mt. Comfort Phase II ( | Indianapolis, IN | |||||||||||||||||||||||||
ATL Fairburn JV ( | Atlanta, GA | |||||||||||||||||||||||||
| $ | $ | |||||||||||||||||||||||||
(1) Excludes noncontrolling interests' share.
(4)Dispositions and Impairment
During the three months ended March 31, 2024, there were no dispositions. During the three months ended March 31, 2023, the Company disposed of its interest in an industrial property for a gross disposition price of $27,910 , and recognized a gain on sale of property of $7,879 .
The Company had three and two properties classified as held for sale at March 31, 2024 and December 31, 2023, respectively. Assets and liabilities of the held for sale properties at March 31, 2024 and December 31, 2023 consisted of the following:
| March 31, 2024 | December 31, 2023 | ||||||||||
| Assets: | |||||||||||
| Real estate, at cost | $ | $ | |||||||||
| Real estate, intangible assets | |||||||||||
| Accumulated depreciation and amortization | ( | ||||||||||
| Other | |||||||||||
| $ | $ | ||||||||||
| Liabilities: | |||||||||||
| Accounts payable and other liabilities | $ | $ | |||||||||
| Deferred revenue | |||||||||||
| Prepaid rent | |||||||||||
| $ | $ | ||||||||||
The Company assesses on a regular basis whether there are any indicators that the carrying value of its real estate assets may be impaired. Potential indicators may include an increase in vacancy at a property, tenant financial instability, change in the estimated holding period of the asset, the potential sale or transfer of the property in the near future and changes in economic conditions. An asset is determined to be impaired if the asset's carrying value is in excess of its estimated fair value and the Company estimates that its cost will not be recovered.
12
LXP INDUSTRIAL TRUST AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2024 and 2023
(Unaudited and dollars in thousands, except share/unit and per share/unit data)
(5)Fair Value Measurements
The following tables present the Company's assets and liabilities measured at fair value on a recurring and non-recurring basis as of March 31, 2024 and December 31, 2023, aggregated by the level in the fair value hierarchy within which those measurements fall:
| Balance | Fair Value Measurements Using | |||||||||||||||||||||||||
| Description | March 31, 2024 | (Level 1) | (Level 2) | (Level 3) | ||||||||||||||||||||||
| Interest rate swap assets | $ | $ | $ | $ | ||||||||||||||||||||||
| Balance | Fair Value Measurements Using | |||||||||||||||||||||||||
| Description | December 31, 2023 | (Level 1) | (Level 2) | (Level 3) | ||||||||||||||||||||||
| Interest rate swap assets | $ | $ | $ | $ | ||||||||||||||||||||||
Impaired assets held for sale (1) | $ | $ | $ | $ | ||||||||||||||||||||||
(1) The Company estimated the fair value of certain real estate assets throughout the year based on a discounted cash flow analysis using a discount rate of 10.0 % and a residual capitalization rate of 8.0 %. As significant inputs to the models are unobservable, the Company determined that the value determined for these properties falls within Level 3 of the fair value reporting hierarchy.
The majority of the inputs used to value the Company's interest rate swaps fall within Level 2 of the fair value hierarchy, such as observable market interest rate curves; however, the credit valuation associated with the interest rate swaps utilizes Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by the Company and its counterparties. As of March 31, 2024 and December 31, 2023, the Company determined that the credit valuation adjustment relative to the overall interest rate swaps was not significant. As a result, all interest rate swaps have been classified in Level 2 of the fair value hierarchy.
The table below sets forth the carrying amounts and estimated fair values of the Company's financial instruments, as of March 31, 2024 and December 31, 2023:
| As of March 31, 2024 | As of December 31, 2023 | ||||||||||||||||||||||
| Carrying Amount | Fair Value | Carrying Amount | Fair Value | ||||||||||||||||||||
| Assets | |||||||||||||||||||||||
| Investment in a sales-type lease, net | $ | $ | $ | $ | |||||||||||||||||||
| Liabilities | |||||||||||||||||||||||
| Debt | $ | $ | $ | $ | |||||||||||||||||||
The fair value of the Company's investment in a sales-type lease, net is primarily estimated utilizing Level 3 inputs by using a discounted cash flow analysis and an estimate of the unguaranteed residual value.
The fair value of the Company's debt is primarily estimated utilizing Level 3 inputs by using a discounted cash flow analysis, based upon estimates of market interest rates. The Company determines the fair value of its Senior Notes using market prices. The inputs used in determining the fair value of these notes are categorized as Level 1 due to the fact that the Company uses quoted market rates to value these instruments. However, the inputs used in determining the fair value could be categorized as Level 2 if trading volumes are low.
Fair values cannot be determined with precision, may not be substantiated by comparison to quoted prices in active markets and may not be realized upon sale. Additionally, there are inherent uncertainties in any fair value measurement technique, and changes in the underlying assumptions used, including discount rates, liquidity risks and estimates of future cash flows, could significantly affect the fair value measurement amounts.
13
LXP INDUSTRIAL TRUST AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2024 and 2023
(Unaudited and dollars in thousands, except share/unit and per share/unit data)
Cash Equivalents, Restricted Cash, Short-Term Investments, Accounts Receivable and Accounts Payable. The Company estimates that the fair value of cash equivalents, restricted cash, short-term investments, accounts receivable and accounts payable approximates carrying value due to the relatively short maturity of the instruments.
(6)Investments in Non-Consolidated Entities
Below is a schedule of the Company's investments in non-consolidated entities:
| Percentage Ownership at | Investment Balance as of | Equity in earnings (losses) of non-consolidated entities | ||||||||||||||||||||||||
| Investment | March 31, 2024 | March 31, 2024 | December 31, 2023 | March 31, 2024 | March 31, 2023 | |||||||||||||||||||||
NNN MFG Cold JV L.P. ("MFG Cold JV")(1) | $ | $ | $ | ( | $ | ( | ||||||||||||||||||||
NNN Office JV L.P. ("NNN JV")(2) | ( | ( | ||||||||||||||||||||||||
Etna Park 70, LLC(3) | ( | ( | ||||||||||||||||||||||||
Etna Park East LLC(4) | ( | ( | ||||||||||||||||||||||||
BSH Lessee L.P.(5) | ||||||||||||||||||||||||||
| $ | $ | $ | ( | $ | ||||||||||||||||||||||
(1) MFG Cold JV is a joint venture formed in 2021 that owns special purpose industrial properties formerly owned by the Company.
(2) NNN JV is a joint venture formed in 2018 that owns office properties formerly owned by the Company.
(3) Joint venture formed in 2017 with a developer entity to acquire a parcel of land.
(4) Joint venture formed in 2019 with a developer entity to acquire a parcel of land.
(5) A joint venture investment which sold its sole single-tenant, net-leased asset in January 2023 and the Company recognized its share of the gain on sale of $4,791 within equity in earnings (losses) of non-consolidated entities within its unaudited condensed consolidated statements of operations.
The Company earns advisory fees from certain of these non-consolidated entities for services related to acquisitions, asset management and debt placement. Advisory fees earned from these non-consolidated investments for the three months ended March 31, 2024 and 2023 were $1,044 and $1,208 , respectively.
(7)Debt
The Company had the following mortgages and notes payable outstanding as of March 31, 2024 and December 31, 2023:
| March 31, 2024 | December 31, 2023 | ||||||||||
| Mortgages and notes payable | $ | $ | |||||||||
| Unamortized debt issuance costs | ( | ( | |||||||||
| Mortgage notes payable, net | $ | $ | |||||||||
Interest rates, including imputed rates on mortgages and notes payable, ranged from 3.5 4.3 4.0
14
LXP INDUSTRIAL TRUST AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2024 and 2023
(Unaudited and dollars in thousands, except share/unit and per share/unit data)
The Company had the following senior notes outstanding as of March 31, 2024 and December 31, 2023:
| Issue Date | March 31, 2024 | December 31, 2023 | Interest Rate | Maturity Date | Issue Price | |||||||||||||||||||||||||||
November 2023 (1) | $ | $ | % | November 2028 | % | |||||||||||||||||||||||||||
| August 2021 | % | October 2031 | % | |||||||||||||||||||||||||||||
| August 2020 | % | September 2030 | % | |||||||||||||||||||||||||||||
| May 2014 | % | June 2024 | % | |||||||||||||||||||||||||||||
| Unamortized debt discount | ( | ( | ||||||||||||||||||||||||||||||
| Unamortized debt issuance costs | ( | ( | ||||||||||||||||||||||||||||||
| Senior notes payable, net | $ | $ | ||||||||||||||||||||||||||||||
Each series of the senior notes is unsecured and require payment of interest semi-annually in arrears. The Company may redeem the notes at its option at any time prior to maturity in whole or in part by paying the principal amount of the notes being redeemed plus any potential make-whole premium.
The Company has an unsecured credit agreement with KeyBank National Association, as agent. The maturity dates and interest rates as of March 31, 2024, are as follows:
Maturity Date | Interest Rate | ||||||||||
$ | July 2026 | SOFR + | |||||||||
$ | January 2027 | Term SOFR + | |||||||||
(1) Maturity date of the revolving credit facility can be extended to July 2027, subject to certain conditions. The interest rate includes a 0.10 % adjustment. The interest rate spread ranges from 0.725 % to 1.400 %, and the revolving credit facility allows for further reductions upon the achievement of to-be-determined sustainability metrics. At March 31, 2024, the Company had no borrowings outstanding and availability of $600,000 , subject to covenant compliance.
(2) The Term SOFR portion of the interest rate was swapped to obtain a current fixed rate of 2.722 % per annum, until January 31, 2025. The aggregate unamortized debt issuance costs for the term loan was $2,973 and $3,236 as of March 31, 2024 and December 31, 2023, respectively.
The Company was compliant with all applicable financial covenants contained in its corporate-level debt agreements at March 31, 2024.
During 2007, the Company issued $200,000 original principal amount of Trust Preferred Securities. The Trust Preferred Securities, which are classified as debt, are due in 2037, are open for redemption at the Company's option and bear interest at a variable rate of three-month SOFR plus a 0.26 % adjustment plus a spread of 170 basis points through maturity. The interest rate at March 31, 2024 was 7.279 %. As of March 31, 2024 and December 31, 2023, there was $129,120 1,301 and $1,326 , respectively, of unamortized debt issuance costs.
The Company capitalized $1,853 and $1,996 of interest expense for the three months ended March 31, 2024 and 2023, respectively.
15
LXP INDUSTRIAL TRUST AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2024 and 2023
(Unaudited and dollars in thousands, except share/unit and per share/unit data)
(8) Derivatives and Hedging Activities
Risk Management Objective of Using Derivatives. The Company is exposed to certain risks arising from both its business operations and economic conditions. The Company principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. The Company manages economic risks, including interest rate, liquidity, and credit risk primarily by managing the type, amount, sources, and duration of its debt funding and the use of derivative financial instruments. Specifically, the Company enters into derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future known and uncertain cash amounts, the value of which are determined by interest rates. The Company's derivative financial instruments are used to manage differences in the amount, timing, and duration of the Company's known or expected cash receipts and its known or expected cash payments principally related to the Company's investments and borrowings.
Cash Flow Hedges of Interest Rate Risk. The Company's objectives in using interest rate derivatives are to add stability to interest expense, to manage its exposure to interest rate movements and therefore manage its cash outflows as it relates to the underlying debt instruments. To accomplish these objectives, the Company primarily uses interest rate swaps as part of its interest rate risk management strategy relating to certain of its variable rate debt instruments. Interest rate swaps designated as cash flow hedges involve the receipt of variable-rate amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount.
The changes in the fair value of derivatives designated and that qualify as cash flow hedges is recorded in accumulated other comprehensive income (loss) and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. The Company did not incur any ineffectiveness during the three months ended March 31, 2024 and 2023.
During July 2022, the Company transitioned its four interest rate swap agreements with its counterparties to a benchmark rate of Term SOFR. The swaps were designated as cash flow hedges of the risk in variability attributable to changes in the Term SOFR swap rates on its $300,000 SOFR-indexed variable rate unsecured term loan. Accordingly, changes in fair value of the swaps are recorded in other comprehensive income (loss) and reclassified to earnings as interest becomes receivable or payable. The swaps expire in January 2025. During the next 12 months, the Company estimates that an additional $8,126 will be reclassified as a decrease in interest expense if the swaps remain outstanding.
As of March 31, 2024, the Company had the following outstanding interest rate derivatives that were designated as cash flow hedges of interest rate risk:
| Interest Rate Derivative | Number of Instruments | Notional | ||||||
| Interest Rate Swaps | $ | |||||||
The table below presents the fair value of the Company's derivative financial instruments as well as their classification on the unaudited condensed consolidated balance sheets:
| As of March 31, 2024 | As of December 31, 2023 | ||||||||||||||||||||||
| Derivatives designated as hedging instruments: | Balance Sheet Location | Fair Value | Balance Sheet Location | Fair Value | |||||||||||||||||||
| Interest Rate Swaps | Other Assets | $ | Other Assets | $ | |||||||||||||||||||
16
LXP INDUSTRIAL TRUST AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2024 and 2023
(Unaudited and dollars in thousands, except share/unit and per share/unit data)
The table below presents the effect of the Company's derivative financial instruments on the unaudited condensed consolidated statements of operations for the three months ended March 31, 2024 and 2023:
| Derivatives in Cash Flow | Amount of Gain (Loss) Recognized in OCI on Derivatives March 31, | Amount of (Income) Loss Reclassified from Accumulated OCI into Income(1) March 31, | ||||||||||||||||||||||||
| Hedging Relationships | 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||||
| Interest Rate Swaps | $ | $ | ( | $ | ( | $ | ( | |||||||||||||||||||
| The Company's share of non-consolidated entity's interest rate cap | ( | ( | ( | |||||||||||||||||||||||
| Total | $ | $ | ( | $ | ( | $ | ( | |||||||||||||||||||
(1) Amounts reclassified from accumulated other comprehensive income (loss) to interest expense within the unaudited condensed consolidated statements of operations.
Total interest expense presented in the unaudited condensed consolidated statements of operations, in which the effects of cash flow hedges are recorded was $16,984 and $11,393 for the three months ended March 31, 2024 and 2023, respectively.
(9) Lease Accounting
Lessor
Operating Leases. The Company’s lease portfolio as a lessor primarily includes general purpose, single-tenant net-leased real estate assets. Most of the Company’s leases require tenants to pay fixed annual rental payments that escalate on an annual basis and variable payments for other operating expenses, such as real estate taxes, insurance, common area maintenance ("CAM"), and utilities, that are based on the actual expenses incurred.
Certain leases allow for the tenant to renew the lease term upon expiration or earlier. Periods covered by a renewal option are included within the lease term only when renewals are deemed to be reasonably certain. Certain leases allow for the tenant to terminate the lease before the expiration of the lease term and certain leases provide the tenant with the right to purchase the leased property at fair market value or a stipulated price upon expiration of the lease term or before.
Accounting guidance under ASC 842 requires the Company to make certain assumptions and judgments in applying the guidance, including determining whether an arrangement includes a lease and determining the lease term when the contract has renewal, purchase or early termination provisions.
The Company analyzes its accounts receivable, customer creditworthiness and current economic trends when evaluating the adequacy of the collectability of the lessee's total accounts receivable balance on a lease by lease basis. In addition, tenants in bankruptcy are analyzed and considerations are made in connection with the expected pre-petition and post-petition claims. If a lessee's accounts receivable balance is considered uncollectible, the Company will write-off the receivable balances associated with the lease to rental revenue and cease to recognize lease income, including straight-line rent, unless cash is received. If the Company subsequently determines that it is probable it will collect substantially all of the lessee's remaining lease payments under the lease term; the Company will reinstate the straight-line balance adjusting for the amount related to the period when the lease was accounted for on a cash basis.
17
LXP INDUSTRIAL TRUST AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2024 and 2023
(Unaudited and dollars in thousands, except share/unit and per share/unit data)
The Company elected that the lease and non-lease components in its leases are a single lease component, which is, therefore, being recognized as rental revenue in its unaudited condensed consolidated statements of operations. The primary non-lease service included within rental revenue is CAM services provided as part of the Company’s real estate leases. ASC 842 requires that the Company capitalize, as initial direct costs, only those costs that are incurred due to the execution of a lease. For the three months ended March 31, 2024 and 2023, the Company did not incur any costs that were not incremental to the execution of leases.
The Company manages the risk associated with the residual value of its leased properties by including contract clauses that make tenants responsible for surrendering the space in good condition upon lease termination, holding a diversified portfolio, and other activities. The Company does not have residual value guarantees on specific properties.
Sales-Type Leases. As of March 31, 2024, the Company had one lease that qualified as a sales-type lease.
The Company has one ground lease for a 100 -acre industrial development land parcel located in the Phoenix, Arizona market that is classified as a sales-type lease. At the commencement date of the lease, the Company evaluated the lease classification and classified the lease as a sales-type lease. The lease contains a purchase option in the amount of $20.00 per land square foot starting on the second anniversary date of the lease (November 2024) and ending on the third anniversary date (November 2025). The Company determined that the purchase option is not reasonably certain of being exercised. The lease met the sales-type lease criteria because the present value of the lease payments was equal to substantially all of the fair value of the underlying asset on the lease commencement date.
For the three months ended March 31, 2024 and 2023, the interest income earned from sales-type leases of $1,899 and $1,833 , respectively, is included in rental revenue in the unaudited condensed consolidated statements of operations.
Rental Revenue Classification. The following table presents the Company’s classification of rental revenue for its operating leases and sales-type lease for the three months ended March 31, 2024 and 2023:
| Three Months Ended March 31, | ||||||||||||||
| Classification | 2024 | 2023 | ||||||||||||
| Fixed | $ | $ | ||||||||||||
| Sales-type lease income | ||||||||||||||
Variable(1) | ||||||||||||||
| Total | $ | $ | ||||||||||||
(1) Primarily comprised of tenant reimbursements.
18
LXP INDUSTRIAL TRUST AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2024 and 2023
(Unaudited and dollars in thousands, except share/unit and per share/unit data)
Future fixed rental receipts for operating and sales-type leases, assuming no new or re-negotiated leases as of March 31, 2024 were as follows:
| Operating | Sales-Type | |||||||
| 2024 - remainder | $ | $ | ||||||
| 2025 | ||||||||
| 2026 | ||||||||
| 2027 | ||||||||
| 2028 | ||||||||
| 2029 | ||||||||
| Thereafter | ||||||||
| Total | $ | $ | ||||||
| Difference between undiscounted cash flow and present value | ( | |||||||
| Investment in a sales-type lease | $ | |||||||
The minimum lease payments above do not include reimbursements to be received from tenants for certain operating expenses and real estate taxes and do not include early termination payments provided for in certain leases, unless such payments are reasonably certain to be received.
Certain leases allow for the tenant to terminate the lease if the property is deemed obsolete, as defined, and upon payment of a termination fee to the landlord, as stipulated in the lease. In addition, certain leases provide the tenant with the right to purchase the leased property at fair market value or a stipulated price.
Lessee
The Company, as lessee, has ground leases, corporate leases for office space, and office equipment leases. All leases were classified as operating leases as of March 31, 2024. The leases have remaining lease terms of up to 33 years. Renewal periods are included in the lease term only when renewal is deemed to be reasonably certain. The lease term also includes periods covered by an option to terminate the lease if the Company is reasonably certain not to exercise the termination option. The Company measures its lease payments by including fixed rental payments and variable rental payments that tie to an index or a rate, such as CPI. The Company recognizes lease expense for its operating leases on a straight-line basis over the lease term and variable lease expense not included in the lease payment measurement as incurred.
The accounting guidance under ASC 842 requires the Company to make certain assumptions and judgments in applying the guidance, including determining whether an arrangement includes a lease, determining the term of a lease when the contract has renewal or termination provisions and determining the discount rate.
The Company determines whether an arrangement is or includes a lease at contract inception by evaluating whether the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. If the Company has the right to obtain substantially all of the economic benefits from and can direct the use of, the identified asset for a period of time, the Company accounts for the contract as a lease.
The Company uses the information available at the lease commencement date to determine the discount rate for any new leases. The Company used a portfolio approach to determine its incremental borrowing rate. Lease contracts were grouped based on similar lease terms and economic environments in a manner in which the Company reasonably expects that the outcome from applying a portfolio approach does not differ materially from an individual lease approach. The Company estimated a collateralized discount rate for each portfolio of leases.
19
LXP INDUSTRIAL TRUST AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2024 and 2023
(Unaudited and dollars in thousands, except share/unit and per share/unit data)
Supplemental information related to operating leases is as follows:
| Three Months Ended | ||||||||||||||
| March 31, 2024 | March 31, 2023 | |||||||||||||
| Weighted-average remaining lease term | ||||||||||||||
| Operating leases (years) | ||||||||||||||
| Weighted-average discount rate | ||||||||||||||
| Operating leases | % | % | ||||||||||||
The components of lease expense for the three months ended March 31, 2024 and 2023 were as follows:
| Income Statement Classification | Fixed | Variable | Total | ||||||||||||||
| 2024: | |||||||||||||||||
| Property operating | $ | $ | $ | ||||||||||||||
General and administrative(1) | |||||||||||||||||
| Total | $ | $ | $ | ||||||||||||||
| 2023: | |||||||||||||||||
| Property operating | $ | $ | $ | ||||||||||||||
| General and administrative | |||||||||||||||||
| Total | $ | $ | $ | ||||||||||||||
(1) The general and administrative lease expense excludes a reduction of $42 to lease expense for the sublease of the Company's office space in New York, New York.
The Company recognized sublease income related to its ground leases in rental revenue of $830 for each of the three months ended March 31, 2024 and 2023.
The following table shows the Company's maturity analysis of its operating lease liabilities as of March 31, 2024:
| Operating Leases | ||||||||
| 2024 - remainder | $ | |||||||
| 2025 | ||||||||
| 2026 | ||||||||
| 2027 | ||||||||
| 2028 | ||||||||
| 2029 | ||||||||
| Thereafter | ||||||||
| Total lease payments | $ | |||||||
| Less: Imputed interest | ( | |||||||
| Present value of lease liabilities | $ | |||||||
20
LXP INDUSTRIAL TRUST AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2024 and 2023
(Unaudited and dollars in thousands, except share/unit and per share/unit data)
(10)Allowance for Credit Loss
As of March 31, 2024 and December 31, 2023, the Company had a $56 and $61 , respectively, credit loss allowance resulting from an investment in a sales-type lease.
The following table details the investment in a sales-type lease as of March 31, 2024 and December 31, 2023:
| As of March 31, 2024 | |||||||||||||||||||||||
| Amortized cost | Allowance | Net Investment | Allowance as a % of Amortized Cost | ||||||||||||||||||||
| Investment in a sales-type lease | $ | $ | ( | $ | % | ||||||||||||||||||
| As of December 31, 2023 | |||||||||||||||||||||||
| Investment in a sales-type lease | $ | $ | ( | $ | % | ||||||||||||||||||
| For the Three Months Ended March 31, 2024 | |||||||||||||||||||||||
| Balance at Beginning of Period | Write-Offs | General Allowance | Balance at End of Period | ||||||||||||||||||||
| Allowance for credit loss | $ | $ | $ | ( | $ | ||||||||||||||||||
| For the Twelve Months Ended December 31, 2023 | |||||||||||||||||||||||
| Allowance for credit loss | $ | $ | $ | ( | $ | ||||||||||||||||||
As of March 31, 2024, the lessee in the sales-type lease remains current on their obligations to the Company and, therefore, the investment is not on non-accrual status.
(11)Concentration of Risk
The Company seeks to reduce its operating and leasing risks through the geographic diversification of its properties in target markets, tenant industry diversification, avoidance of dependency on a single asset and the creditworthiness of its tenants. For the three months ended March 31, 2024 and 2023, no single tenant represented greater than 10% of rental revenues.
Cash and cash equivalent balances and certain short-term investments at certain institutions may exceed insurable amounts. The Company believes it mitigates this risk by investing in or through major financial institutions.
21
LXP INDUSTRIAL TRUST AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2024 and 2023
(Unaudited and dollars in thousands, except share/unit and per share/unit data)
(12)Equity
Shareholders' Equity:
During the three months ended March 31, 2024 and 2023, the Company granted common shares to certain employees as follows:
| Three Months Ended March 31, | |||||||||||
| 2024 | 2023 | ||||||||||
Performance Shares:(1) | |||||||||||
| Shares granted: | |||||||||||
| Index - 1Q | |||||||||||
| Peer - 1Q | |||||||||||
Grant date fair value per share:(2) | |||||||||||
| Index - 1Q | $ | $ | |||||||||
| Peer - 1Q | $ | $ | |||||||||
Non-Vested Common Shares:(3) | |||||||||||
| Shares issued | |||||||||||
| Grant date fair value | $ | $ | |||||||||
(1) The shares vest based on the Company's total shareholder return growth after a three-year measurement period relative to an index and a
group of peer companies. Dividends are not paid on these grants until earned. Once the performance criteria are met and the actual
number of shares earned is determined, such shares vest immediately. During the three months ended March 31, 2024, 119,519
performance shares of the remaining 565,652 issued in 2021 vested.
(2) The fair value of awards granted was determined at the grant date using a Monte Carlo simulation model.
At-The-Market Offering Program. The Company maintains an At-The-Market offering program ("ATM program") under which the Company can issue common shares, including through forward sales contracts.
During the three months ended March 31, 2024, the Company amended the terms of its ATM program, under which the Company may, from time to time, sell up to $350,000 of common shares over the term of the program. During the three months ended March 31, 2024 and 2023, the Company did not sell shares under the ATM program.
Stock Based Compensation. During the three months ended March 31, 2024 and 2023, the Company issued 25,755 and 24,008 , respectively, of fully vested common shares to non-management members of the Company's Board of Trustees with a fair value of $225 and $240 , respectively.
Share Repurchase Program. In August 2022, the Company's Board of Trustees authorized the repurchase of up to an additional 10,000,000 common shares under the Company's share repurchase program, which does not have an expiration date. There were no common shares repurchased during the three months ended March 31, 2024 and 2023. As of March 31, 2024, 6,874,241 common shares remain available for repurchase under this authorization. The Company records a liability for repurchases that have not yet been settled as of the period end. There were no unsettled repurchases as of March 31, 2024.
Series C Preferred Stock. The Company had 1,935,400 shares of Series C Cumulative Convertible Preferred Stock (“Series C Preferred”) outstanding at March 31, 2024. The shares have a dividend of $3.25 per share per annum, have a liquidation preference of $96,770 , and the Company, if certain common share prices are achieved, can force conversion into common shares of the Company. As of March 31, 2024, each share was convertible into 2.4339 common shares. This conversion ratio may increase over time if the Company's common share dividend exceeds certain quarterly thresholds.
22
LXP INDUSTRIAL TRUST AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2024 and 2023
(Unaudited and dollars in thousands, except share/unit and per share/unit data)
If certain fundamental changes occur, holders may require the Company, in certain circumstances, to repurchase all or part of their shares of Series C Preferred. In addition, upon the occurrence of certain fundamental changes, the Company will, under certain circumstances, increase the conversion rate by a number of additional common shares or, in lieu thereof, may in certain circumstances elect to adjust the conversion rate upon the shares of Series C Preferred becoming convertible into shares of the public acquiring or surviving company.
The Company may, at the Company's option, cause shares of Series C Preferred to be automatically converted into that number of common shares that are issuable at the then prevailing conversion rate. The Company may exercise its conversion right only if, at certain times, the closing price of the Company's common shares equals or exceeds 125 % of the then prevailing conversion price of the Series C Preferred.
Holders of shares of Series C Preferred generally have no voting rights, but will have limited voting rights if the Company fails to pay dividends for six or more quarters and under certain other circumstances. Upon conversion, the Company may choose to deliver the conversion value to investors in cash, common shares, or a combination of cash and common shares.
A summary of the changes in accumulated other comprehensive income (loss) related to the Company's cash flow hedges is as follows:
| Three Months Ended March 31, | ||||||||||||||
| 2024 | 2023 | |||||||||||||
| Balance at beginning of period | $ | $ | ||||||||||||
| Other comprehensive income (loss) before reclassifications | ( | |||||||||||||
| Amounts of (income) loss reclassified from accumulated other comprehensive income (loss) to interest expense | ( | ( | ||||||||||||
| Balance at end of period | $ | $ | ||||||||||||
Noncontrolling Interests. In conjunction with several of the Company's acquisitions in prior years, sellers were issued limited partner interests in an operating partnership (“OP units”) as a form of consideration. All OP units, other than OP units owned by the Company, were redeemable for common shares at certain times, at the option of the holders, and were generally not otherwise mandatorily redeemable by the Company. The OP units were classified as a component of permanent equity as the Company has determined that the OP units were not redeemable securities as defined by GAAP. Each OP unit was redeemable for approximately 1.13 common shares.
During the three months ended March 31, 2023, 3,572 common shares, were issued by the Company, in connection with OP unit redemptions, for an aggregate value of $18 . On December 31, 2023, the operating partnership was merged with and into the Company and all outstanding OP units were converted into 822,627 common shares for a total value of $7,800 on a one to 1.13 basis.
23
LXP INDUSTRIAL TRUST AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2024 and 2023
(Unaudited and dollars in thousands, except share/unit and per share/unit data)
The following discloses the effects of changes in the Company's ownership interests in its noncontrolling interests:
| Net Income (Loss) Attributable to Shareholders and Transfers from Noncontrolling Interests | |||||||||||
| Three Months Ended March 31, | |||||||||||
| 2024 | 2023 | ||||||||||
| Net income (loss) attributable to LXP Industrial Trust shareholders | $ | ( | $ | ||||||||
| Transfers from noncontrolling interests: | |||||||||||
Increase in additional paid-in-capital for redemption of noncontrolling OP units | |||||||||||
| Change from net income (loss) attributable to shareholders and transfers from noncontrolling interests | $ | ( | $ | ||||||||
(13)Related Party Transactions
(14)Commitments and Contingencies
In addition to the commitments and contingencies disclosed elsewhere, the Company has the following commitments and contingencies.
The Company is obligated under certain tenant leases, including its proportionate share for leases for non-consolidated entities, to fund the expansion of the underlying leased properties. The Company, under certain circumstances, may guarantee to tenants the completion of base building improvements and the payment of tenant improvement allowances and lease commissions on behalf of its subsidiaries.
As of March 31, 2024, the Company expects to incur approximately $99,700 excluding noncontrolling interests' share and potential developer fees or partner buyouts, to substantially fund the consolidated development project commitments. As of March 31, 2024, the Company has interests in various industrial land parcels held for development. The Company is unable to estimate the timing of any required funding for the potential development projects on these parcels.
(15)Supplemental Disclosure of Statement of Cash Flow Information
In addition to disclosures discussed elsewhere, during the three months ended March 31, 2024 and 2023, the Company paid $10,799 and $11,320 , respectively, for interest and $128 and $126 , respectively, for income taxes.
During the three months ended March 31, 2024 and 2023, the Company accrued additions for capital projects of $35,631 and $34,924 , respectively.
24
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Introduction
Unless stated otherwise or the context otherwise requires, when we use the terms the “Company,” the “Trust,” “LXP,” “we,” “our,” and “us,” we refer collectively to LXP Industrial Trust and its consolidated subsidiaries. All of the Company's interests are held, and all of the property operating activities are conducted through special purposes entities, which we refer to as property owner subsidiaries or lender subsidiaries and are separate and distinct legal entities, but in some instances are consolidated for financial statement purposes and/or disregarded for income tax purposes. References herein to ‘‘this Quarterly Report” are to this Quarterly Report on Form 10-Q for the three months ended March 31, 2024. The results of operations contained herein for the three months ended March 31, 2024 and 2023 are not necessarily indicative of the results that may be expected for a full year.
When we use the term “REIT,” we mean real estate investment trust. All references to 2024 and 2023, refer to the periods ending March 31, 2024 and 2023, respectively, and our fiscal year ended December 31, 2023.
When we use the term “GAAP,” we mean United States generally accepted accounting principles in effect from time to time.
When we use the term “common shares,” we mean our shares of beneficial interest par value $0.0001, classified as common stock. When we use the term “Series C Preferred Shares,” we mean our beneficial interest classified as 6.50% Series C Cumulative Convertible Preferred Stock.
When we use the term “base rent,” we mean GAAP rental revenue and ancillary income, excluding billed tenant reimbursements and lease termination income.
When we use “Stabilized Portfolio,” we mean all real estate properties other than non-stabilized properties. We consider stabilization to occur upon the earlier of 90% occupancy of the property or one-year from the cessation of major construction activities. Non-stabilized, substantially completed development projects are classified within investments in real estate under construction.
The terms “FFO,” “Adjusted Company FFO,” and “NOI” are defined below.
The following is a discussion and analysis of the unaudited condensed consolidated financial condition and results of operations of LXP Industrial Trust for the three months ended March 31, 2024 and 2023, and significant factors that could affect its prospective financial condition and results of operations. This discussion should be read together with the accompanying unaudited condensed consolidated financial statements of the Company included herein and notes thereto and with the consolidated financial statements and notes thereto included in the Company's most recent Annual Report on Form 10-K, which was filed with the Securities and Exchange Commission, or SEC, on February 15, 2024, which we refer to as the Annual Report. Historical results may not be indicative of future performance.
Forward-Looking Statements. This Quarterly Report, together with other statements and information publicly disseminated by us, contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. We intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995 and include this statement for purposes of complying with these safe harbor provisions. Forward-looking statements, which are based on certain assumptions and describe our future plans, strategies and expectations, are generally identifiable by use of the words “believes,” “expects,” “intends,” “anticipates,” “estimates,” “projects,” “may,” “plans,” “predicts,” “will,” “will likely result” or similar expressions. Readers should not rely on forward-looking statements since they involve known and unknown risks, uncertainties and other factors which are, in some cases, beyond our control and which could materially affect actual results, performances or achievements. In particular, among the factors that could cause actual results, performances or achievements to differ materially from current expectations, strategies or plans include, among others, those risks discussed below in “Management's Discussion and Analysis of Financial Condition and Results of Operations,” and under the headings “Risk Factors” in this Quarterly Report and under “Risk Factors” in Part I, Item A and “Management's Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of the Annual Report and other periodic reports filed by the Company with the SEC. Except as required by law, we undertake no obligation to publicly release any revisions to these forward-looking statements which may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. Accordingly, there is no assurance that our expectations will be realized.
25
Overview
As of March 31, 2024, we 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.
As of March 31, 2024, our portfolio consisted of 115 warehouse/distribution facilities and three other properties. Our warehouse/distribution portfolio is primarily focused in our target markets within the Sunbelt and Midwest. We expect to grow these markets by executing on our development pipeline and opportunistically acquiring facilities in these markets. However, increased financing costs have continue to negatively impact transaction activity and development starts in our target markets and the markets where we own properties. Due to this, the current key drivers to growth in our revenue are leasing our vacant development properties and mark-to-market of our lease rollover.
First Quarter 2024 Transaction Summary.
The following summarizes our significant transactions during the three months ended March 31, 2024.
Leasing Activity:
•Entered into an amendment for an extended lease encompassing 119,295 square feet. The average fixed rent on the lease was $6.59 per square foot compared to the average fixed rent on this lease before the amendment of $5.15 per square foot. The lease commission was $1.23 per square foot for the extended lease.
Investments:
•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. Two vacant warehouse/distribution facilities containing an aggregate of 2.1 million square feet were placed in service one year after the completion of base building construction.
•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, which is estimated to commence in January 2025.
•Invested an aggregate of $25.5 million in development activities.
During the three months ended March 31, 2024, we completed and placed in service the following warehouse/distribution assets:
| Market (% ownership) | Square Feet | Initial Capitalized Cost (millions) | Placed in Service Date | Approximate Lease Term (years) | % Leased | ||||||||||||
| Phoenix, AZ (93%) | 488,400 | $ | 52.8 | February 2024 | 7.0 | 100% | |||||||||||
| Central Florida (80%) | 1,085,280 | 80.8 | February 2024 | N/A | —% | ||||||||||||
| Indianapolis, IN (80%) | 1,053,360 | 64.3 | February 2024 | N/A | —% | ||||||||||||
| 2,627,040 | $ | 197.9 | |||||||||||||||
Critical Accounting Estimates
Our critical accounting estimates are included in Part II, “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” of the Company's Annual Report on Form 10-K for the year ended December 31, 2023. There have been no material changes to these estimates during the three months ended March 31, 2024.
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Liquidity and Capital Resources
Cash Flows. We believe that cash flows from operations will continue to provide adequate capital to fund our operating and administrative expenses, regular debt service obligations and all dividend payments in accordance with applicable REIT requirements in both the short-term and long-term. However, our cash flow from operations may be negatively affected in the near term if we experience tenant defaults. In addition, we anticipate that cash on hand, borrowings under our unsecured revolving credit facility, capital recycling proceeds, issuances of equity, mortgage proceeds and other debt, as well as other available alternatives, will provide the necessary capital required by our business.
At March 31, 2024, our secured debt was $59.6 million compared to $60.9 million at December 31, 2023. Our property owner subsidiaries do not have mortgage maturities with balloon payments due until 2031. With respect to mortgages encumbering properties where the expected lease rental revenues are sufficient to provide an estimated property value in excess of the mortgage balance, we believe our property owner subsidiaries have sufficient sources of liquidity to meet these obligations through future cash flows from operations, the credit markets and, if determined appropriate by us, a capital contribution from us from either cash on hand and short-term investments ($293.8 million at March 31, 2024), property sale proceeds and borrowing capacity on our unsecured credit facility ($600.0 million at March 31, 2024, subject to covenant compliance).
Cash flows from operations were $38.9 million for the three months ended March 31, 2024 as compared to $37.5 million for the three months ended March 31, 2023. The increase was primarily related to increased rental revenue related to lease extensions and placing development properties into service, partially offset by a decrease in cash flow due to property sales. The underlying drivers that impact our working capital, and therefore cash flows from operations, are the timing of collection of rents, including reimbursements from tenants, payment of interest on debt and payment of operating and general and administrative costs. We believe the net-lease structure of the leases encumbering a majority of the properties in which we have an interest mitigates the risks of the timing of cash flows from operations since the payment and timing of operating costs related to the properties are generally borne directly by the tenant. The collection and timing of tenant rents are closely monitored by management as part of our cash management program.
Net cash used in investing activities totaled $27.7 million and $5.5 million during the three months ended March 31, 2024 and 2023, respectively. Cash used in investing activities in 2024 related primarily to investments in real estate under construction, capital expenditures, lease costs, investments in non-consolidated entities and changes in real estate deposits, net, partially offset by distributions from non-consolidated entities in excess of accumulated earnings. Cash used in investing activities in 2023 primarily related to investments in real estate under construction offset by net proceeds received from the disposition of real estate and distributions from non-consolidated entities.
Net cash used in financing activities totaled $47.2 million and $43.5 million during the three months ended March 31, 2024 and 2023, respectively. Cash used in financing activities in 2024 was primarily related to dividend, debt service payments and the repurchase of a noncontrolling interest, offset by revolving credit facility borrowings.
At-The-Market Offering Program. We maintain an At-The-Market offering program ("ATM program") under which we can issue common shares, including through forward sales contracts.
During the three months ended March 31, 2024, we amended the terms of our ATM program, under which we may, from time to time, sell up to $350.0 million common shares over the term of the program. We did not sell shares under the ATM program during the three months ended March 31, 2024 and March 31, 2023, respectively.
The volatility in the capital markets primarily resulting from the effects of the current economic conditions may negatively affect our ability to access the capital markets through our ATM program and other offerings.
Share Repurchase Program. In August 2022, our Board of Trustees authorized the repurchase of an additional 10.0 million common shares under our share repurchase program with no expiration date. We did not repurchase any common shares during the three months ended March 31, 2024 and 2023. As of March 31, 2024, 6.9 million common shares remained available for repurchase under this authorization.
Dividends. Dividends paid to our common and preferred shareholders were $39.5 million and $38.2 million in the three months ended March 31, 2024 and 2023, respectively.
We declared a quarterly dividend of $0.13 per common share during the three months ended March 31, 2024, which is an increase of $0.005 per common share from the $0.125 per common share quarterly dividend declared during the three months ended March 31, 2023.
27
Financings. The following senior notes were outstanding as of March 31, 2024:
| Issue Date | Face Amount (millions) | Interest Rate | Maturity Date | Issue Price | ||||||||||||||||||||||
November 2023(1) | $ | 300.0 | 6.750 | % | November 2028 | 99.423 | % | |||||||||||||||||||
| August 2021 | 400.0 | 2.375 | % | October 2031 | 99.758 | % | ||||||||||||||||||||
| August 2020 | 400.0 | 2.70 | % | September 2030 | 99.233 | % | ||||||||||||||||||||
| May 2014 | 198.9 | 4.40 | % | June 2024 | 99.883 | % | ||||||||||||||||||||
| Senior notes payable | $ | 1,298.9 | ||||||||||||||||||||||||
(1) A portion of the net proceeds were invested on a short-term basis and we intend to use the investments to repay the 2014 Senior Notes at or near maturity.
The senior notes are unsecured and requires interest payments semi-annually in arrears. We may redeem the senior notes at our option at any time prior to maturity in whole or in part by paying the principal amount of the senior notes being redeemed plus a make-whole premium.
A summary of the maturity dates and interest rates of our unsecured credit agreement, as of March 31, 2024, are as follows:
Maturity Date | Current Interest Rate | ||||||||||
$600.0 Million Revolving Credit Facility(1) | July 2026 | SOFR + 0.85% | |||||||||
$300.0 Million Term Loan(2) | January 2027 | Term SOFR + 1.00% | |||||||||
(1) Maturity date of the revolving credit facility can be extended to July 2027 at our option, subject to certain conditions. The interest rate includes a 0.10% adjustment. The interest rate spread ranges from SOFR plus 0.725% to 1.40%. At March 31, 2024, we had no borrowings outstanding and availability of $600.0 million, subject to covenant compliance.
(2) The Term SOFR portion of the interest rate was swapped to obtain a current fixed rate of 2.722% per annum until January 31, 2025.
As of March 31, 2024, we were compliant with all applicable financial covenants contained in our corporate-level debt agreements.
During 2007, we issued $200.0 million in Trust Preferred Securities, which bore interest at a fixed rate of 6.804% through April 2017 and, thereafter, bears interest at a variable rate of three-month SOFR plus a 26 basis point adjustment plus 170 basis points. These securities are (1) classified as liabilities, (2) due in 2037 and (3) currently redeemable by us. As of March 31, 2024, and 2023, there were $129.1 million of these securities outstanding.
Development Costs
As of March 31, 2024, the aggregate estimated total costs of our consolidated development projects included in investment in real estate under construction are $215.0 million. We expect to incur approximately $99.7 million of additional costs, excluding noncontrolling interests' share and potential developer fees or partner buyouts, to fund all of the remaining costs for our consolidated development project commitments. However, the risks associated with development, including supply chain issues, could adversely impact our estimates. As of March 31, 2024, we had three consolidated and two non-consolidated subsidiaries that owned land parcels held for industrial development. We are unable to estimate the timing of any required fundings for potential development projects on these parcels.
Results of Operations
Three months ended March 31, 2024 compared with three months ended March 31, 2023. The decrease in net income attributable to common shareholders of $11.5 million was primarily due to the items discussed below.
The increase in total gross revenues of $1.2 million was primarily due to an aggregate increase of $1.8 million in base rental revenue and tenant reimbursement income primarily due to properties placed in service and leasing, partially offset by a decrease in rental revenue due to property sales.
The decrease in other revenue of $0.6 million was primarily due to a decrease in parking income due to the sale of the Philadelphia, PA office property in 2023.
28
The increase in depreciation and amortization expense of $1.8 million was primarily due to properties completed and placed in service in 2023 and 2024.
The decrease in impairment charges of $3.5 million was primarily related to an impairment charge recognized on an office property during the three months ended March 31, 2023. There were no impairment charges recognized during the three months ended March 31, 2024.
The increase in non-operating income of $3.6 million was primarily due to an increase in interest income earned from investing in short term investments.
The increase in interest and amortization expense of $5.6 million is primarily due to a $5.1 million increase related to the 2028 Senior Notes that were issued in November 2023. Variable interest expense increased $0.3 million related to the Trust Preferred Securities in the three months ended March 31, 2024 compared to the three months ended March 31, 2023. Additionally, capitalized interest decreased $0.1 million primarily due to less development activity in the three months ended March 31, 2024 compared to the three months ended March 31, 2023.
The decrease in gains on sales of properties of $7.9 million was related to the timing of property dispositions.
The decrease in equity in earnings (losses) of non-consolidated entities of $4.9 million was primarily due to recognizing our share of a gain on sale of property related to BSH Lessee L.P. in 2023 that resulted in an increase in equity in earnings of $4.8 million.
Same-Store Results
Same-store net operating income, or NOI, which is a non-GAAP measure, represents the NOI for consolidated properties that were owned, stabilized and included in our portfolio for the entirety of the two comparable reporting periods. We define NOI as operating revenues (rental income (less GAAP rent adjustments, non-cash income related to sales-type leases and lease termination income, net), and other property income) less property operating expenses. Other REITs may use different methodologies for calculating same-store NOI, and accordingly same-store NOI may not be comparable to other REITs. Management believes that same-store NOI is a useful supplemental measure of our operating performance because same-store NOI excludes the change in NOI from acquired and disposed of properties and it highlights operating trends such as occupancy levels, rental rates and operating costs on properties. However, same-store NOI should not be viewed as an alternative measure of our financial performance since it does not reflect the operations of our entire portfolio, nor does it reflect the impact of general and administrative expenses, acquisition-related expenses, interest expense, depreciation and amortization costs, other nonproperty income and losses, the level of capital expenditures and leasing costs necessary to maintain the operating performance of our properties, or trends in development and construction activities which are significant economic costs and activities that could materially impact our results from operations. We believe that net income is the most directly comparable GAAP measure to same-store NOI.
The following presents our consolidated same-store NOI, for the three months ended March 31, 2024 and 2023 ($000's):
| Three Months Ended March 31, | |||||||||||
| 2024 | 2023 | ||||||||||
| Total cash base rent | $ | 64,618 | $ | 60,799 | |||||||
| Tenant reimbursements | 13,532 | 12,720 | |||||||||
| Property operating expenses | (14,055) | (13,305) | |||||||||
| Same-store NOI | $ | 64,095 | $ | 60,214 | |||||||
Our same-store NOI increased for the three months ended March 31, 2024 compared to the three months ended March 31, 2023 by 6.4% primarily due to an increase in cash base rents. As of March 31, 2024 and 2023, our historical same-store square footage leased was 99.2% and 99.5%, respectively.
29
Below is a reconciliation of net income (loss) to same-store NOI for periods presented ($000's):
| Three Months Ended March 31, | |||||||||||
| 2024 | 2023 | ||||||||||
| Net income (loss) | $ | (555) | $ | 11,315 | |||||||
| Interest and amortization expense | 16,984 | 11,393 | |||||||||
| Provision for income taxes | 125 | 216 | |||||||||
| Depreciation and amortization | 47,509 | 45,741 | |||||||||
| General and administrative | 9,493 | 9,242 | |||||||||
| Transaction costs | — | 4 | |||||||||
| Non-operating/advisory fee income | (4,813) | (1,402) | |||||||||
| Gains on sales of properties | — | (7,879) | |||||||||
| Impairment charges | — | 3,523 | |||||||||
| Equity in (earnings) losses of non-consolidated entities | 1,281 | (3,604) | |||||||||
| Straight-line adjustments | (2,702) | (3,087) | |||||||||
| Lease incentives | 138 | 96 | |||||||||
| Amortization of above/below market leases | (449) | (449) | |||||||||
| Sales-types lease adjustments | (597) | (447) | |||||||||
| NOI | $ | 66,414 | $ | 64,662 | |||||||
| Less NOI: | |||||||||||
| Acquisitions, developments and dispositions | (2,319) | (4,448) | |||||||||
| Same-Store NOI | $ | 64,095 | $ | 60,214 | |||||||
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Funds From Operations
We believe that Funds from Operations, or FFO, which is a non-GAAP measure, is a widely recognized and appropriate measure of the performance of an equity REIT. We believe FFO is frequently used by securities analysts, investors and other interested parties in the evaluation of REITs, many of which present FFO when reporting their results. FFO is intended to exclude GAAP historical cost depreciation and amortization of real estate and related assets, which assumes that the value of real estate diminishes ratably over time. Historically, however, real estate values have risen or fallen with market conditions. As a result, FFO provides a performance measure that, when compared year over year, reflects the impact to operations from trends in occupancy rates, rental rates, operating costs, development activities, interest costs and other matters without the inclusion of depreciation and amortization, providing a perspective that may not necessarily be apparent from net income.
The National Association of Real Estate Investment Trusts, or NAREIT, defines FFO as “net income (calculated in accordance with GAAP), excluding depreciation and amortization related to real estate, gains and losses from the sales of certain real estate assets, gains and losses from change in control and impairment write-downs of certain real estate assets and investments in entities when the impairment is directly attributable to decreases in the value of depreciable real estate held by the entity. The reconciling items include amounts to adjust earnings from consolidated partially-owned entities and equity in earnings of unconsolidated affiliates to FFO.” FFO does not represent cash generated from operating activities in accordance with GAAP and is not indicative of cash available to fund cash needs.
We present FFO available to common shareholders and unitholders - basic and also present FFO available to all equityholders and unitholders - diluted on a company-wide basis as if all securities that are convertible, at the holder's option, into our common shares, are converted at the beginning of the period. We also present Adjusted Company FFO available to all equityholders and unitholders - diluted, which adjusts FFO available to all equityholders and unitholders - diluted for certain items which we believe are not indicative of the operating results of our real estate portfolio. We believe this is an appropriate presentation as it is frequently requested by securities analysts, investors and other interested parties. Since others do not calculate these measures in a similar fashion, these measures may not be comparable to similarly titled measures as reported by others. These measures should not be considered as an alternative to net income as an indicator of our operating performance or as an alternative to cash flow as a measure of liquidity.
Adjusted Company FFO, NOI and the other non-GAAP financial measures should not be considered as alternatives to, or more meaningful than, net income or loss as determined in accordance with GAAP. FFO, Adjusted Company FFO and NOI, and GAAP net income (loss) differ because FFO, Adjusted Company FFO and NOI exclude many items that are factored into GAAP net income or loss.
Because of the differences between FFO, Adjusted Company FFO, NOI and GAAP net income or loss, FFO, Adjusted Company FFO and NOI may not be accurate indicators of our operating performance, especially during periods in which we are acquiring and selling properties. In addition, FFO, Adjusted Company FFO and NOI are not necessarily indicative of cash flow available to fund cash needs and investors should not consider FFO, Adjusted Company FFO or NOI as alternatives to cash flows from operations, as an indication of our liquidity or as indicative of funds available to fund our cash needs, including our ability to make distributions to our shareholders.
Neither the SEC nor any other regulatory body has passed judgment on the acceptability of the adjustments that we use to calculate FFO, Adjusted Company FFO and NOI. Also, because not all companies calculate FFO, Adjusted Company FFO and NOI the same way, comparisons with other companies’ measures with similar titles may not be meaningful.
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The following presents a reconciliation of net income (loss) attributable to common shareholders to FFO available to common shareholders and unitholders and Adjusted Company FFO available to all equityholders and unitholders for the three months ended March 31, 2024 and 2023 (unaudited and dollars in thousands, except share and per share amounts):
| Three Months Ended March 31, | |||||||||||||||||||||||
| FUNDS FROM OPERATIONS: | 2024 | 2023 | |||||||||||||||||||||
| Basic and Diluted: | |||||||||||||||||||||||
| Net income (loss) attributable to common shareholders | $ | (1,931) | $ | 9,522 | |||||||||||||||||||
| Adjustments: | |||||||||||||||||||||||
| Depreciation and amortization - real estate | 46,208 | 44,860 | |||||||||||||||||||||
| Impairment charges - real estate | — | 3,523 | |||||||||||||||||||||
| Noncontrolling interests - OP units | — | 3 | |||||||||||||||||||||
| Amortization of leasing commissions | 1,301 | 881 | |||||||||||||||||||||
| Joint venture and noncontrolling interest adjustment | 1,563 | 2,400 | |||||||||||||||||||||
| Gains on sales of properties, including our share of non-consolidated entities | — | (12,654) | |||||||||||||||||||||
| FFO available to common shareholders and unitholders - basic | 47,141 | 48,535 | |||||||||||||||||||||
| Preferred dividends | 1,572 | 1,572 | |||||||||||||||||||||
| Amount allocated to participating securities | 90 | 72 | |||||||||||||||||||||
| FFO available to all equityholders and unitholders - diluted | 48,803 | 50,179 | |||||||||||||||||||||
| Allowance for credit losses | (5) | 79 | |||||||||||||||||||||
Transaction costs(1) | — | 4 | |||||||||||||||||||||
| Noncontrolling interest adjustments | — | (4) | |||||||||||||||||||||
| Adjusted Company FFO available to all equityholders and unitholders - diluted | $ | 48,798 | $ | 50,258 | |||||||||||||||||||
| Per Common Share and Unit Amounts | |||||||||||||||||
| Basic: | |||||||||||||||||
| FFO | $ | 0.16 | $ | 0.17 | |||||||||||||
| Diluted: | |||||||||||||||||
| FFO | $ | 0.16 | $ | 0.17 | |||||||||||||
| Adjusted Company FFO | $ | 0.16 | $ | 0.17 | |||||||||||||
| Weighted-Average Common Shares: | |||||||||||||||||||||||
| Basic: | |||||||||||||||||||||||
| Weighted-average common shares outstanding - basic EPS | 291,288,383 | 290,080,508 | |||||||||||||||||||||
Operating partnership units(2) | — | 832,087 | |||||||||||||||||||||
| Weighted-average common shares outstanding - basic FFO | 291,288,383 | 290,912,595 | |||||||||||||||||||||
| Diluted: | |||||||||||||||||||||||
| Weighted-average common shares outstanding - diluted EPS | 291,288,383 | 291,040,466 | |||||||||||||||||||||
| Preferred shares - Series C | 4,710,570 | 4,710,570 | |||||||||||||||||||||
| Weighted-average common shares outstanding - diluted FFO | 295,998,953 | 295,751,036 | |||||||||||||||||||||
(1) Includes costs related to entering into a sales-type lease.
(2) Includes OP units other than OP units held by us.
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Off-Balance Sheet Arrangements
As of March 31, 2024, we had investments in various real estate entities with varying structures. The real estate investments owned by our institutional joint ventures are generally financed with non-recourse debt. Non-recourse debt is generally defined as debt whereby the lenders' sole recourse with respect to borrower defaults is limited to the value of the assets collateralized by the debt. The lender generally does not have recourse against any other assets owned by the borrower or any of the members or partners of the borrower, except for certain specified exceptions listed in the particular loan documents. These exceptions generally relate to “bad boy” acts, including fraud, prohibited transfers and breaches of material representations, and environmental matters. We have guaranteed such obligations for certain of our non-consolidated entities with respect to $457.7 million of such non-recourse debt. We believe the likelihood of making any payments under such guaranties is remote and we generally have an agreement from each partner to reimburse us for its proportionate share of any liability related to a guarantee trigger unless such trigger is caused solely by us.
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ITEM 3. QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK
Our exposure to market risk relates primarily to our variable-rate indebtedness not subject to interest rate swaps and our fixed-rate debt. Our consolidated aggregate principal variable-rate indebtedness not subject to interest rate swaps was $129.1 million at March 31, 2024 and 2023, which represented 7.2% and 8.6%, respectively, of our aggregate principal consolidated indebtedness. During the three months ended March 31, 2024 and 2023, our variable-rate indebtedness had a weighted-average interest rate of 7.3% and 6.3%, respectively, and had the weighted-average interest rate been 100 basis points higher, our interest expense for the three months ended March 31, 2024 and 2023 would have increased by $0.3 million and $0.5 million, respectively. At each of March 31, 2024 and 2023, our aggregate principal consolidated fixed-rate debt was $1.7 billion and $1.4 billion, respectively, which represented 92.8% and 91.4%, respectively, of our aggregate principal indebtedness.
For certain of our financial instruments, fair values are not readily available since there are no active trading markets as characterized by current exchanges between willing parties. Accordingly, we derive or estimate fair values using various valuation techniques, such as computing the present value of estimated future cash flows using discount rates commensurate with the risks involved. However, the determination of estimated cash flows may be subjective and imprecise. Changes in assumptions or estimation methodologies can have a material effect on these estimated fair values, especially given the volatility of the current economic environment. The following fair value was determined using the interest rates that we believe our outstanding fixed-rate indebtedness would warrant as of March 31, 2024. We believe the fair value is indicative of the interest rate environment as of March 31, 2024, but this amount does not take into consideration the effects of subsequent interest rate fluctuations. Accordingly, we estimate that the fair value of our fixed-rate indebtedness was $1.5 billion as of March 31, 2024.
Our interest rate risk objectives are to limit the impact of interest rate fluctuations on earnings and cash flows and to lower our overall borrowing costs. To achieve these objectives, we manage our exposure to fluctuations in market interest rates through the use of fixed-rate debt instruments to the extent that reasonably favorable rates are obtainable with such arrangements. We may enter into derivative financial instruments such as interest rate swaps or caps to mitigate our interest rate risk on a related financial instrument or to effectively lock the interest rate on a portion of our variable-rate debt. As of March 31, 2024, we had four interest rate swap agreements (see Note 8 to our unaudited condensed consolidated financial statements contained in this Quarterly Report).
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures. Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as such terms are defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this Quarterly Report to determine if such controls and procedures were effective to ensure that information required to be disclosed by us in reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms and that information required to be disclosed by us in reports filed or submitted under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Management, including each of our Chief Executive Officer and Chief Financial Officer, has concluded that our disclosure controls and procedures were effective as of March 31, 2024.
Changes in Internal Control Over Financial Reporting. There were no changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter to which this Quarterly Report relates that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Limitations on the Effectiveness of Controls. Internal control over financial reporting cannot provide absolute assurance of achieving financial reporting objectives because of its inherent limitations. Internal control over financial reporting is a process that involves human diligence and compliance and is subject to lapses in judgment and breakdowns resulting from human failures. Internal control over financial reporting also can be circumvented by collusion or improper management override. Because of such limitations, there is a risk that material misstatements may not be prevented or detected on a timely basis by internal control over financial reporting. However, these inherent limitations are known features of the financial reporting process. Therefore, it is possible to design into the process safeguards to reduce, though not eliminate, this risk.
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PART II - OTHER INFORMATION
ITEM 1.Legal Proceedings.
From time to time, we are directly and indirectly involved in legal proceedings arising in the ordinary course of our business, including claims by lenders under non-recourse carve-out guarantees. We believe, based on currently available information, and after consultation with legal counsel, that although the outcomes of those normal course proceedings are uncertain, the results of such proceedings, in the aggregate, will not have a material adverse effect on our business, financial condition and results of operations.
ITEM 1A.Risk Factors.
There have been no material changes in our risk factors from those disclosed in the Annual Report.
ITEM 2.Unregistered Sales of Equity Securities and Use of Proceeds.
The following table summarizes repurchases of our common shares during the three months ended March 31, 2024 pursuant to publicly announced repurchase plans (1):
| Period | (a) Total Number of Shares Purchased | (b) Average Price Paid for Share | (c) Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1) | (d) Maximum Number of Shares That May Yet Be Purchased Under the Plans or Programs (1) | ||||||||||||||||||||||
| January 1 - 31, 2024 | — | $ | — | — | 6,874,241 | |||||||||||||||||||||
| February 1 - 29, 2024 | — | $ | — | — | 6,874,241 | |||||||||||||||||||||
| March 1 - 31, 2024 | — | $ | — | — | 6,874,241 | |||||||||||||||||||||
| First quarter 2024 | — | $ | — | — | 6,874,241 | |||||||||||||||||||||
(1) Share repurchase authorization of an additional 10.0 million common shares announced on August 4, 2022, which has no expiration date.
ITEM 3.Defaults Upon Senior Securities - not applicable.
ITEM 4.Mine Safety Disclosures - not applicable.
ITEM 5.Other Information
During the three months ended March 31, 2024, no trustee or officer of the Company adopted terminated
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ITEM 6.Exhibits.
| Exhibit No. | Description | |||||||||||||
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| 101.INS | — | XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document (2, 5) | ||||||||||||
| 101.SCH | — | Inline XBRL Taxonomy Extension Schema (2, 5) | ||||||||||||
| 101.CAL | — | Inline XBRL Taxonomy Extension Calculation Linkbase (2, 5) | ||||||||||||
| 101.DEF | — | Inline XBRL Taxonomy Extension Definition Linkbase Document (2, 5) | ||||||||||||
| 101.LAB | — | Inline XBRL Taxonomy Extension Label Linkbase Document (2, 5) | ||||||||||||
| 101.PRE | — | Inline XBRL Taxonomy Extension Presentation Linkbase Document (2, 5) | ||||||||||||
(1) Incorporated by reference.
(2) Filed herewith.
(3) Furnished herewith. This exhibit shall not be deemed “filed” for purposes of Section 11 or 12 of the Securities Act of 1933, as amended (the “Securities Act”), or Section 18 of the Securities Exchanges Act of 1934, as amended (the "Exchange Act"), or otherwise subject to the liabilities of those sections, and shall not be part of any registration statement to which it may relate, and shall not be incorporated by reference into any registration statement or other document filed under the Securities Act or the Exchange Act, except as set forth by specific reference in such filing or document.
(4) Management contract or compensatory plan or arrangement.
(5) The following materials from this Quarterly Report on Form 10-Q for the period ended March 31, 2024 are formatted in Inline XBRL (Extensible Business Reporting Language): (i) Unaudited Condensed Consolidated Balance Sheets of the Company; (ii) Unaudited Condensed Consolidated Statements of Operations of the Company; (iii) Unaudited Condensed Consolidated Statements of Comprehensive Income (Loss) of the Company; (iv) Unaudited Condensed Consolidated Statements of Changes in Equity of the Company; (v) Unaudited Condensed Consolidated Statements of Cash Flows of the Company; and (vi) Notes to Unaudited Condensed Consolidated Financial Statements of the Company, detailed tagged.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| LXP Industrial Trust | |||||||||||
| Date: | May 2, 2024 | By: | /s/ T. Wilson Eglin | ||||||||
| T. Wilson Eglin | |||||||||||
Chief Executive Officer and President (principal executive officer) | |||||||||||
| Date: | May 2, 2024 | By: | /s/ Beth Boulerice | ||||||||
| Beth Boulerice | |||||||||||
Chief Financial Officer, Executive Vice President and Treasurer (principal financial officer) | |||||||||||
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