LXP Industrial Trust

Previous wording

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.

Current wording

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 and six months ended June 30, 2024. The results of operations contained herein for the three and six months ended June 30, 2024 and 2023 are not necessarily indicative of the results that may be expected for a full year.

Previous wording

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.

Current wording

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 and six months ended June 30, 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.

Previous wording

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.

Current wording

As of June 30, 2024, we had equity ownership interests in approximately 117 consolidated warehouse/distribution facilities, located in 17 states and containing an aggregate of approximately 58.2 million square feet of space, approximately 93.5% of which was leased. During the three months ended June 30, 2024, we disposed of our remaining office properties and our portfolio is 100% industrial.

Previous wording

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.

Current wording

Our portfolio is primarily Class A real estate investments focused in our target markets within the Sunbelt and Midwest. We expect to grow in these markets by executing on our development pipeline and opportunistically acquiring facilities in these markets. However, increased financing costs 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.

Previous wording

•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.

Current wording

•Two vacant warehouse/distribution facilities containing an aggregate of 1.2 million square feet were placed in service one year after the completion of base building construction.

Previous wording

•Invested an aggregate of $25.5 million in development activities.

Current wording

•Invested an aggregate of $34.7 million in development activities.

Previous wording

During the three months ended March 31, 2024, we completed and placed in service the following warehouse/distribution assets:

Current wording

During the six months ended June 30, 2024, we completed and placed in service the following warehouse/distribution assets:

Previous wording

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.

Current wording

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 six months ended June 30, 2024.

Previous wording

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).

Current wording

At June 30, 2024, our secured debt was $58.2 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 ($48.7 million at June 30, 2024), property sale proceeds and borrowing capacity on our unsecured credit facility ($600.0 million at June 30, 2024, subject to covenant compliance).

Previous wording

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.

Current wording

Cash flows from operations were $77.4 million for the six months ended June 30, 2024 as compared to $92.6 million for the six months ended June 30, 2023. The decrease was primarily related to an increase in interest expense, a decrease in distributions from non-consolidated entities and the payment of a lease concession to a tenant. 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.

Previous wording

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.

Current wording

Net cash provided by (used in) in investing activities totaled $82.1 million and $(38.9) million during the six months ended June 30, 2024 and 2023, respectively. Cash provided by investing activities in 2024 related primarily to redeeming investments in held-to-maturity securities, proceeds from property sales and distributions received from non-consolidated entities, offset by investments in real estate under construction, capital expenditures, lease costs, investments in non-consolidated entities and changes in real estate deposits, net. Cash used in investing activities in 2023 primarily related to investments in real estate under construction and capital expenditures, offset by net proceeds received from the disposition of real estate and distributions from non-consolidated entities.

Previous wording

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.

Current wording

Net cash used in financing activities totaled $310.0 million and $85.0 million during the six months ended June 30, 2024 and 2023, respectively. Cash used in financing activities in 2024 was primarily related to the repayment of the 4.40% Senior Notes due 2024, dividends, debt service payments and the purchase of noncontrolling interests, offset by contributions from noncontrolling interests.

Previous wording

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.

Current wording

We may 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 six months ended June 30, 2024 and 2023, respectively.

Previous wording

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.

Current wording

Volatility in the capital markets, including as a result of general economic conditions, may negatively affect our ability to access the capital markets through our ATM program and other offerings.

Previous wording

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.

Current wording

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 six months ended June 30, 2024 and 2023. At June 30, 2024, 6.9 million common shares remained available for repurchase under this authorization.

Previous wording

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.

Current wording

Dividends. Dividends paid to our common and preferred shareholders were $79.1 million and $76.1 million in the six months ended June 30, 2024 and 2023, respectively.

Previous wording

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.

Current wording

We declared a quarterly dividend of $0.13 per common share during the six months ended June 30, 2024, which is an increase of $0.005 per common share from the $0.125 per common share quarterly dividend declared during the six months ended June 30, 2023.

Previous wording

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.

Current wording

As of June 30, 2024, the aggregate estimated total costs of our consolidated development projects included in investment in real estate under construction are $117.3 million. We expect to incur approximately $65.6 million of additional costs, excluding noncontrolling interests' share and potential developer incentive 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 June 30, 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.

Previous wording

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.

Current wording

Three months ended June 30, 2024 compared with three months ended June 30, 2023. The increase in net income attributable to common shareholders of $13.5 million was primarily due to the items discussed below.

Previous wording

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.

Current wording

The increase in depreciation and amortization expense of $2.4 million was primarily due to properties completed and placed in service in 2023 and 2024.

Previous wording

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.

Current wording

The increase in non-operating income of $2.6 million was primarily due to an increase in interest income earned from investing in short-term investments.

Previous wording

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.

Current wording

The increase in interest and amortization expense of $7.5 million was primarily due to a $5.3 million increase related to the 2028 Senior Notes that were issued in November 2023. Capitalized interest decreased $2.6 million primarily due to less development activity in the three months ended June 30, 2024 compared to the three months ended June 30, 2023. These amounts were partially offset by a $0.4 million decrease in interest expense related to the 2024 Senior Notes that were paid off in June 2024 at maturity.

Previous wording

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.

Current wording

The decrease in impairment charges of $13.0 million was primarily related to impairment charges recognized on office properties during the three months ended June 30, 2023. There were no impairment charges recognized during the three months ended June 30, 2024.

Previous wording

The decrease in gains on sales of properties of $7.9 million was related to the timing of property dispositions.

Current wording

The increase in gains on sales of properties of $8.4 million was related to the timing of property dispositions.

Previous wording

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.

Current wording

The increase in rental revenues of $1.5 million was primarily due to an aggregate increase of $13.4 million in base rental revenue and tenant reimbursement income primarily due to properties placed in service and leasing, partially offset by a decrease of $12.0 million in rental revenue due to property sales.

Previous wording

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.

Current wording

The decrease in other revenue of $1.6 million was primarily due to a decrease in parking income due to the sale of the Philadelphia, PA office property in 2023.

Previous wording

The following presents our consolidated same-store NOI, for the three months ended March 31, 2024 and 2023 ($000's):

Current wording

The following presents our consolidated same-store NOI, for the three and six months ended June 30, 2024 and 2023 ($000's):

Previous wording

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.

Current wording

Our same-store NOI increased for the three and six months ended June 30, 2024 compared to the three and six months ended June 30, 2023 by 5.0% and 5.1%, respectively, primarily due to an increase in cash base rents. As of June 30, 2024 and 2023, our historical same-store square footage leased was 99.4% and 99.5%, respectively.

Previous wording

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):

Current wording

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 and six months ended June 30, 2024 and 2023 (unaudited and dollars in thousands, except share and per share amounts):

Previous wording

(2) Includes OP units other than OP units held by us.

Current wording

(2) Includes OP units other than OP units that were held by us.

Previous wording

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.

Current wording

As of June 30, 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 $453.6 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.