LXP Industrial Trust Q1 2025 Earnings Call Transcript

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Provided by Quartr
May 1, 2025

Key Takeaways

  • LXP delivered 5.2% same store NOI growth in Q1 with 99.2% occupancy and reiterated 2025 guidance of 3–4% NOI growth and $0.61–$0.65 Adjusted FFO per share.
  • Sunbelt and Lower Midwest markets remained robust with US net absorption of 23 msf (19 msf in its 12 target markets) and a construction pipeline down ~75% from peak, supporting LXP’s 91% Class A portfolio.
  • Management flagged tariff uncertainty as a headwind, noting slower leasing cadence and longer tenant decision times despite limited ABR expirations (<3.5%).
  • Leases expiring through 2/2030 carry an estimated 18% mark-to-market upside, and anticipated stabilized yields on the three big-box assets remain near 6%.
  • Balance sheet strength is underscored by repaying $50 m of term debt, net debt/EBITDA of 5.9x, $110 m pro forma cash, and 47% of ABR backed by investment-grade tenants.
AI Generated. May Contain Errors.
Earnings Conference Call
LXP Industrial Trust Q1 2025
00:00 / 00:00

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Operator

Good morning. My name is Aaron, and I will be your conference operator for today. At this time, I would like to welcome everyone to the LXP Industrial Trust First Quarter twenty twenty five Earnings Call and Webcast. All lines have been placed on mute to prevent any background noise. And after the speakers' remarks, there will be a question and answer session.

Operator

With that, I'm pleased to turn our call over to Heather Gentry, Executive Vice President of Investor Relations. Heather, you may begin.

Heather Gentry
Heather Gentry
Senior Vice President-Investor Relations at LXP Industrial Trust

Thank you, operator. Welcome to LXP Industrial Trust first quarter twenty twenty five earnings conference call and webcast. The earnings release was distributed this morning, and both the release and quarterly supplemental are available on our website in the Investors section and will be furnished to the SEC on a Form eight ks. Certain statements made during this conference call regarding future events and expected results may constitute forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. LXP believes that these statements are based on reasonable assumptions.

Heather Gentry
Heather Gentry
Senior Vice President-Investor Relations at LXP Industrial Trust

However, certain factors and risks, including those included in today's earnings press release and those described in reports that LXP files with the SEC from time to time could cause LXP's actual results to differ materially from those expressed or implied by such statements. Except as required by law, LXP does not undertake a duty to update any forward looking statements. In the earnings press release and quarterly supplemental disclosure package, LXP has reconciled all non GAAP financial measures to the most directly comparable GAAP measure. Any references in these documents to adjusted company FFO refer to adjusted company funds from operations available to all equity holders on a fully diluted basis. Operating performance measures of an individual investment are not intended to be viewed as presenting a numerical measure of LXP's historical or future financial performance, financial position, or cash flows.

Heather Gentry
Heather Gentry
Senior Vice President-Investor Relations at LXP Industrial Trust

On today's call, Will Eglin, Chairman and CEO, and Nathan Brunner, CFO, will provide a recent business update and commentary on first quarter results. Brendan Mullenix, CIO, and James Dudley, executive vice president and director of asset management, will be available for the q and a portion of this call. I will now turn the call over to Will.

Wilson Eglin
Wilson Eglin
Chairman, Chief Executive Officer and President at LXP Industrial Trust

Thanks, Heather, and good morning, everyone. Our 02/2025 is off to a good start as we produce solid same store NOI growth backed by strong leasing outcomes in the first quarter. We remain focused on increasing occupancy, enhancing returns in our portfolio, and executing on our 12 market investment strategy in the Sunbelt and Lower Midwest. In the first quarter, industrial fundamentals held relatively steady despite tariff uncertainty. While it is too early to know the full impact of the tariff announcements, our markets have continued to experience healthier industrial fundamentals when compared to select coastal markets, and we believe strong long term demand trends remain in place.

Wilson Eglin
Wilson Eglin
Chairman, Chief Executive Officer and President at LXP Industrial Trust

Overall, US net absorption was 23,000,000 square feet in the first quarter, '19 million square feet of which was in our 12 target markets. On the supply side, new starts remain low, and the construction pipeline in our 12 target markets is approximately 87,000,000 square feet, down almost 75% from the 2,022 peak of approximately 330,000,000 square feet. In terms of product mix, new class a facilities continued to be favored by many users, evidenced by higher net occupancy gains for new product compared to older facilities, which saw an increase in move outs during the quarter. We believe our portfolio, which is comprised of 91% class a industrial facilities with an average age of nine and a half years, stands to outperform in a market environment where quality matters. There has been a slower cadence in leasing transactions this year, primarily as a result of our limited 02/2025 lease roll, which represents less than 3.5% of our ABR, and secondarily, due to longer decision making times by many tenants.

Wilson Eglin
Wilson Eglin
Chairman, Chief Executive Officer and President at LXP Industrial Trust

We remain cautious in the near term as the current market environment, particularly as it relates to trade policy, has created further uncertainty for tenants making space use decisions. That said, leasing outcomes have been favorable so far this year, and our current mark to market on leases expiring through 02/1930 is estimated to be approximately 18% based on brokers' estimates, which will contribute to our FFO growth. As we discussed on last quarter's call, we expect there could be lower tenant retention this year compared to 02/2024. In place rents on the remaining 02/2025 lease expirations are approximately 30 to 35% below market. We believe any space we may get back in 02/2025 will be attractive to other users.

Wilson Eglin
Wilson Eglin
Chairman, Chief Executive Officer and President at LXP Industrial Trust

With respect to other vacancy, we have activity at all three of our big box facilities. Leasing these facilities is an important component to FFO growth and continues to be our top priority. Our investment strategy is concentrated on 12 target market situated along the Sunbelt and select Lower Midwest states. These markets, where approximately 85% of our gross assets are located, have favorable demographics with employment and population growth exceeding the national average, business friendly government policies, and logistics infrastructure. These markets are also benefiting from significant investment in the onshoring of advanced manufacturing.

Wilson Eglin
Wilson Eglin
Chairman, Chief Executive Officer and President at LXP Industrial Trust

Some of the current projects in our target markets include Taiwan Semiconductor in Phoenix, Hyundai's Meta Plant in Savannah, Apple server manufacturing plant in Houston, Eli Lilly's investment in Indianapolis, and Andrew's drone manufacturing facility in Columbus. Our focused geographic strategy provides us with both investment and operational benefits, including deeper relationships with brokers, developers, and tenants, as well as enhanced market knowledge resulting in better investment and asset management decision making. With that in mind, year to date, we've opportunistically sold two industrial assets for approximately $75,000,000 at an average cash capitalization rate of 4.1%. We were able to maximize the value of both assets. One was sold to a user buyer, and the second was sold after securing a long term lease extension that raised the rent considerably.

Wilson Eglin
Wilson Eglin
Chairman, Chief Executive Officer and President at LXP Industrial Trust

As a result, we have a strong cash position as we manage through an uncertain market backdrop. Going forward and as market conditions permit, we continue to look for good uses of capital in our target markets as we selectively recycle capital from our assets in non target markets. With that, Nathan will now discuss our financials, leasing, and balance sheet in more detail.

Nathan Brunner
Nathan Brunner
EVP, CFO & Treasurer at LXP Industrial Trust

Thanks, Will. We reported adjusted company FFO in the first quarter of $0.16 per diluted common share were approximately $46,000,000 which was consistent with our expectations. Our same store NOI growth was 5.2% during the quarter, with our same store portfolio 99.2% leased at quarter end. We are maintaining our 2025 same store NOI growth range of 3% to 4% and maintaining our 2025 adjusted company FFO range of $0.61 to $0.65 per diluted common share. The low end of this guidance assumes we do not lease any of the big boxes in 2025, and the high end represents all three big box leases commencing in the second half of the year.

Nathan Brunner
Nathan Brunner
EVP, CFO & Treasurer at LXP Industrial Trust

Our expectations for 2025 gs and A are unchanged at 39,000,000 to $41,000,000 In the quarter, we leased approximately 1,100,000 square feet, which consisted of two lease extensions with an average annual escalator of 3.6. We achieved great outcomes on both extensions. This included a five year renewal at our 540,000 square foot facility in Phoenix with a 59% cash rental increase over the prior rent and 3.25% annual rental bumps. We also extended our lease with Mars at our 605,000 square foot facility in Atlanta for an additional two years to 02/1930, locking in two more years of 4% escalators. We previously signed a three year extension with Mars last May at an approximately 63 increase over the prior rent, TI reimbursements.

Nathan Brunner
Nathan Brunner
EVP, CFO & Treasurer at LXP Industrial Trust

We commenced the redevelopment of our 250,000 square foot facility in Richmond during the quarter, which we expect to complete in early two thousand twenty six. The facility is part of an integrated four building campus, and the redevelopment includes repositioning the property into a stand alone facility. Market rent is roughly 70% over the previous rent, and the building is the only one of its size currently available in the market. On the balance sheet front in the first quarter, we repaid the 50,000,000 unswapped portion of the 300,000,000 term loan. Net debt to adjusted EBITDA was 5.9 times at quarter end.

Nathan Brunner
Nathan Brunner
EVP, CFO & Treasurer at LXP Industrial Trust

We continue to focus on reducing leverage over time as we grow EBITDA through raising occupancy, marking rents to market, and increasing rents with annual escalators. We had $71,000,000 of cash on balance sheet at quarter end and a hundred and $10,000,000 pro form a for the proceeds from the Chillicothe, Ohio property sale in April. In light of the current market uncertainty, we thought it would be helpful to highlight the quality of our tenant base. Approximately 47% of our ABR is from tenants with investment grade rated parent companies. This high credit quality is one of the benefits of owning larger boxes and a young portfolio as the tenants are typically high quality, well capitalized large corporations.

Nathan Brunner
Nathan Brunner
EVP, CFO & Treasurer at LXP Industrial Trust

With that, I'll turn the call back over to Will.

Wilson Eglin
Wilson Eglin
Chairman, Chief Executive Officer and President at LXP Industrial Trust

Thanks, Nathan. In closing, we're pleased with our first quarter results. While the direction of tenant demand is uncertain in the near term, we believe our asset quality, tenant credit strength, balance sheet, and portfolio footprint that aligns with onshoring initiatives positions us well. Our focus remains on creating value for our shareholders by increasing occupancy, marking rents to market, raising rents through annual escalators, and concentrating on our 12 market investment strategy. With that, I'll turn the call back over to the operator.

Operator

Thank you.

Operator

We'll take our first question for today from the line of Anthony Paolone with JPMorgan. Your line is live.

Anthony Paolone
Anthony Paolone
Executive Director at J.P. Morgan

Great, thanks. Good morning. I guess first question is, I know you don't have a lot of expirations in 2025, but as you start to look out the next few years that ramps, can you identify any like known move outs? Like as we start to look out the next few years and you talked a lot about the lease up that we're all looking at on the three big boxes as being a driver to return to growth. But are there any headwinds we should start to think about that could be offsets as you look out to the heavier expirations right now?

James Dudley
James Dudley
Executive Vice President and Director-Asset Management at LXP Industrial Trust

Morning, Tony. It's James. So, you know, looking at '26 and '27, it's too early to tell. You know, we like the tenant base we have there, and we think that we're gonna be successful in renewing a lot of those tenants. But much of the '26 expirations are back end weighted, so we're gonna have to kinda wait and see on that.

James Dudley
James Dudley
Executive Vice President and Director-Asset Management at LXP Industrial Trust

We've touched on the 2025 expirations that there's some uncertainty around the tenants that we have left, but we're, we're also, you know, excited about the fact that we have high quality property with the opportunity to mark to market. So regardless of those outcomes, we feel like we're going to be able to drive rent, whether it's with the new tenants here through renewal.

Anthony Paolone
Anthony Paolone
Executive Director at J.P. Morgan

Okay. And then with regards to the three large boxes, what do yields and rents look like there at this point? Like has there been any diminution in the market or have those held steady? What's happening?

James Dudley
James Dudley
Executive Vice President and Director-Asset Management at LXP Industrial Trust

So Tony, maybe I'll take the first part on rent piece and then Brenda can talk about the yields. But we haven't really seen anything come that's created a lot of movement off the market rents. Maybe there's been a little bit of a, you know, a slight markdown. But for the most part, what we've seen is it's been more in the free rent TI. So we've seen on the on the big box leasing, we've seen seen TI kinda tick up from mid single digits to low double digits in some cases, and we're back to seeing, you know, almost a month per year of, free rent being offered as a concession, but not as much pressure on the face rate.

Brendan Mullinix
Brendan Mullinix
Executive Vice President and Chief Investment Officer at LXP Industrial Trust

Yeah. And then with respect to yield, we're not changing our prior guidance from the stabilization at around six.

Anthony Paolone
Anthony Paolone
Executive Director at J.P. Morgan

Okay. And then just last one if I can. Anything else on the disposition side over the balance of the year that you're thinking about?

Wilson Eglin
Wilson Eglin
Chairman, Chief Executive Officer and President at LXP Industrial Trust

Not at the moment, Tony. We made two really good sales. But while we're in this sort of, you know, ninety day pause around tariff policy, you know, we've sort of gone pencils down on disposition activity. We we do have a longer term strategic objective of continuing to concentrate on the 12 markets. We made some good progress there last year.

Wilson Eglin
Wilson Eglin
Chairman, Chief Executive Officer and President at LXP Industrial Trust

We, you know, normally would have put some of that cash, we freed up from the sales back back to work. But at the moment, we like cash, a lot, and, you know, we'll we'll just wait and see how things unfold in the next sixty days or so.

Anthony Paolone
Anthony Paolone
Executive Director at J.P. Morgan

Okay. Thank you.

Operator

Thanks for your questions. Our next question comes from the line of Todd Thomas with KeyBanc Capital Markets. Your line is live.

Analyst

Hi, good morning. This is AJ on for Todd. Appreciate you guys taking my question. First, just wanted to ask about the redevelopment you announced this morning. Is this a change in the strategy, or was this always the plan and previously included in guidance?

James Dudley
James Dudley
Executive Vice President and Director-Asset Management at LXP Industrial Trust

So what we had is we had a contraction option from a a tenant that had a four building campus, and the rest of the campus goes out through 2030. So it could have been that they continued in and stayed through 2030, or they had the option to contract. But the buildings that we acquired were always meant to be single if they needed to be. So it's a good opportunity for us to redevelop this property, which basically means separating it from the others and, marketing it and hopefully getting a really good tick on the mark to market.

Analyst

Okay. That's helpful. And then so so what impact does the redevelopment have on guidance? So perhaps, you know, impacts around it being taken out of the same store pool, so, you know, same store NOI. You know, anything anything regarding cap interest or anything else that will impact AFFO?

Nathan Brunner
Nathan Brunner
EVP, CFO & Treasurer at LXP Industrial Trust

Yeah. AJ, it's, it's it's Nathan here. So we had always anticipated that this property would be taken out of the, the same store pool. So when we put out guidance of three three to 4%, same store NOI growth for the year, we had this property excluded because we we knew that this redevelopment was part of that business plan. You know, as as James described, the scale of this particular project clearly puts it into the bucket of a project that that should be in the in the redevelopment pool.

Nathan Brunner
Nathan Brunner
EVP, CFO & Treasurer at LXP Industrial Trust

And then with and then specifically on q one, you know, the inclusion or exclusion of this particular property really had no impact on same store, NOI growth because this redevelopment project didn't didn't really did not start until the end of the quarter.

Wilson Eglin
Wilson Eglin
Chairman, Chief Executive Officer and President at LXP Industrial Trust

It it's a fantastic time to have a building this size available in in that market. The the the rent that we've had there is very inexpensive related to market, so this will be kind of just a great outcome for us, when we get the asset repositioned.

Analyst

Okay. No. That that's, helpful. That kinda leads to the next question on, kinda what interest, you know, that that market and perhaps that building you're kind of expecting to see. And, also, what what is the stabilized expected yield to be, following the redevelopment?

James Dudley
James Dudley
Executive Vice President and Director-Asset Management at LXP Industrial Trust

So I guess the good news is that it's the only building of its size in that market. You know, Richmond's had a low vacancy rate. So we think that when we have the building ready to go, we're gonna get a lot of good activity and so we mentioned a strong mark to market.

Nathan Brunner
Nathan Brunner
EVP, CFO & Treasurer at LXP Industrial Trust

And then just just just adding on that, you know, you sort of asked about return profile. And, you know, the way we the way we thought about it is, you know, the incremental rent that we may achieve on on getting this property back and taking the the rent up to market is is something like $700 per annum. And, you know, the capital investment that that we're expecting here and and disclosed in materials today is around $5,000,000. You know, if you think about the yield on cap capital investment there, it's something like a mid teens yield.

Analyst

Perfect. I appreciate it. Thanks, guys.

Wilson Eglin
Wilson Eglin
Chairman, Chief Executive Officer and President at LXP Industrial Trust

Thank you.

Operator

Thanks for your questions. Our next question is from the line of Jon Petersen with Jefferies. Your line is live.

Jon Petersen
Jon Petersen
Managing Director at Jefferies

Great. Thank you. Good morning, guys. Just looking at your lease expiration maybe through the end of twenty twenty six, I'm just curious if we look at the markets, are there any of those markets where you're particularly, I guess, excited in terms of upside on leasing spreads? I think your three largest expirations next year in Dallas, Charlotte, and Cleveland.

Jon Petersen
Jon Petersen
Managing Director at Jefferies

But anything to kind of point out and call out there if we think specifically about the markets you're in?

James Dudley
James Dudley
Executive Vice President and Director-Asset Management at LXP Industrial Trust

Yeah. I mean, we we still like the Sunbelt markets. We think that that's where our best opportunity is for mark to market. We feel like we've got some really good new product that's gonna have, you know, the first generation role in Phoenix where we're gonna significantly mark those to market. And we've got some really strong assets in Dallas as well.

James Dudley
James Dudley
Executive Vice President and Director-Asset Management at LXP Industrial Trust

So, you know, Sunbelt is where we're looking for the really strong mark to market.

Jon Petersen
Jon Petersen
Managing Director at Jefferies

Okay. Are you guys seeing any I I know you you mentioned this early, but with tariffs and everything going on, I mean, are are you starting to see any signs of, you know, inventory building in the near term, maybe higher utilization? I think Prologis kind of alluded to some of that on their call. And then maybe any sort of demand related to supply chain reconfiguration, I guess, specifically thinking about auto manufacturing. Is there any of that to really call out?

James Dudley
James Dudley
Executive Vice President and Director-Asset Management at LXP Industrial Trust

So we what we've seen, I guess, related to tariffs is we've seen a couple of different avenues by tenants. We've seen some that have just kinda continued on with their business plans through the tariffs. We've seen that through, consolidation in some of the markets that they had planned ahead of time. We've also seen the acceleration of demand in in some circumstances around bringing in additional product and trying to to find, room for that. Solar panels are are one of the the, items I would call out there.

James Dudley
James Dudley
Executive Vice President and Director-Asset Management at LXP Industrial Trust

And then, we've seen some kinda take a step back and pause on their plans and and reevaluate, what they were planning to do and trying to figure out, like, think everyone else is, what this ultimately looks like so they can plan around it from a supply chain perspective.

Jon Petersen
Jon Petersen
Managing Director at Jefferies

Okay. And then, last question for me. I think, a couple weeks ago, Amazon, you know, there were headlines about, you know, them wanting to accelerate investment in warehouses in The US. I mean, how how do you think about some of the larger e commerce players? Or maybe what are you seeing in terms of demand, there?

Jon Petersen
Jon Petersen
Managing Director at Jefferies

And and could that potentially be good news for your your 3,000,000 square foot, recent developments you're trying to lease up?

James Dudley
James Dudley
Executive Vice President and Director-Asset Management at LXP Industrial Trust

They're definitely still in the market, and we'll see if, if it plays out for us in in any of our big boxes. But we've seen their activity pick up. They're definitely kicking the tires. They're not the only ones. There's some major retailers that are in the market right now, looking to do some of the same things.

Jon Petersen
Jon Petersen
Managing Director at Jefferies

Okay. Great. That's helpful. Thank you.

Wilson Eglin
Wilson Eglin
Chairman, Chief Executive Officer and President at LXP Industrial Trust

Thanks, John.

Operator

Thanks for your call. Our next question is from the line of Jim Cameron with Evercore.

James Kammert
Managing Director at Evercore ISI

Your line is live. Thank you. Good morning. I know it's a way out there and maybe you can't speak to it, but you've got the two big lease expirations potentially with Nissan in early twenty twenty seven and kind of thematically with the line of questioning on the call, they've been kind of a struggling operator. Could you just talk a little bit about what sort of notice they need to provide you or where you are you talking about those renewals and kinda how they're doing in those facilities?

James Kammert
Managing Director at Evercore ISI

Just kinda get a sense of what your expectation is for those two leases. Thank you.

Nathan Brunner
Nathan Brunner
EVP, CFO & Treasurer at LXP Industrial Trust

Maybe before James, you know, specifically addresses, you know, how the how the renewal discussions might play out. Just with with regard to, missing the right we have the two facilities, leased to Nissan and Jackson and Nashville. You know, The US market is is critical to Nissan. It's about 40% of, their total sales. And although, you know, you know, seeing the global efficiency program that's that's been announced, you know, all of the recent public commentary has really focused on reconfirming their commitment to The US plants.

Nathan Brunner
Nathan Brunner
EVP, CFO & Treasurer at LXP Industrial Trust

And very, very recently, they've come out and and said that they're actually intending to max production in these US plants. And I don't hand it off to to James just to address the specifics around the renewal.

James Dudley
James Dudley
Executive Vice President and Director-Asset Management at LXP Industrial Trust

So our our two big warehouses are directly tied to the manufacturing plants. The one in Nashville is tied to the plant via private road. They also invested a significant amount of capital to bring suppliers in house so that they can get things just in time to the manufacturing plant. Similarly, in Canton, which is outside of Jackson, we've we've been talking to them about potentially having some additional investment, probably of their own dollars, but just investment of doing something similar to what, they did in Nashville. So investing millions of dollars into bringing, suppliers in.

James Dudley
James Dudley
Executive Vice President and Director-Asset Management at LXP Industrial Trust

They've also both facilities have lower rent. You know, Nashville has been a really tight market. So if if something were to happen, which I don't anticipate, we do have a a really strong facility there in Nashville that, would be functionally available to someone else. But they have preferential renewal options as well. So I think we have a really high probability of of keeping them with all those different factors.

James Kammert
Managing Director at Evercore ISI

Very good. And definitely put, like, incremental of their own investment inside your building as well, obviously. I guess I just wanna understand kinda these aren't just just four walls of a box. They put some monies in.

James Dudley
James Dudley
Executive Vice President and Director-Asset Management at LXP Industrial Trust

They have. So so what they did in Nashville is so there's about a million square feet that is just the warehouse piece, and they coinvested with suppliers. And they put a couple of different manufacturing operations and the balance of the space so that they would have those suppliers on-site and could more quickly provide those products to the manufacturing plant.

James Kammert
Managing Director at Evercore ISI

Got it. Okay. Thanks for the color. Appreciate it.

Wilson Eglin
Wilson Eglin
Chairman, Chief Executive Officer and President at LXP Industrial Trust

Thanks, Jim.

Operator

Ladies and gentlemen, last call. Okay. With that, let's go ahead and end our q and a session for today. Mr. Egland, I'd like to turn it back over to you for any closing comments.

Wilson Eglin
Wilson Eglin
Chairman, Chief Executive Officer and President at LXP Industrial Trust

We appreciate everyone joining our call this morning, and we look forward to updating you on our progress over the balance of the year. Thanks again for joining us today.

Operator

Thank you.

Executives
    • Heather Gentry
      Heather Gentry
      Senior Vice President-Investor Relations
    • Wilson Eglin
      Wilson Eglin
      Chairman, Chief Executive Officer and President
    • Nathan Brunner
      Nathan Brunner
      EVP, CFO & Treasurer
    • James Dudley
      James Dudley
      Executive Vice President and Director-Asset Management
    • Brendan Mullinix
      Brendan Mullinix
      Executive Vice President and Chief Investment Officer
Analysts
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