Q3 2022 LXP Industrial Trust Earnings Call

It makes her estimated for substantial completion by the end of this year through second quarter of 2023.

We continued to produce strong leasing performance with 270000 square feet at least during the quarter at high industrial base and cash based rental spreads a 47% and 41% respectively.

To date base in cash base rents are new and extended industrial leases increased approximately 31% and.

26%, respectively with average annual Escalations of 3.4%.

4 million square feet of leasing volume.

Or leasing outlook remains positive for next year and we believe we continue to have a very good mark to market opportunity ahead of us.

We returned capital to shareholders during the quarter through the repurchase of 5.6 million common shares.

And an average price of $10.16 per share.

Year to date, we've returned a total of $131 billion to shareholders.

Share repurchase activity.

Going forward share repurchases will be considered in the context of maintaining leverage within our target range of six to seven times net debt to adjusted EBITDA and development funding needs.

Leverage increase during the quarter, but is expected to decline when proceeds over forward equity are utilized at year end to reduce debt levels.

We also announced this morning that our board of trustees authorized a quarterly dividend increase that reflects the strength of our operations.

The new declared quarterly common share dividend, which will be paid in the first quarter of 2023 will be 12, and a half cents per share representing an increase of approximately 4.2%.

Over the prior quarterly dividend.

On the ESG front, we're pleased to have published our second corporate responsibility report in October .

Which includes a comprehensive overview of the significant progress, we're making on our ESG in our initiatives and strategies.

A commitment to ESG is core to who we are electricity and we are dedicated to continuing to advance our initiatives and enhance our policies and practices to help our tenants create a more sustainable future to embrace diversity and inclusion on our team and in our communities and to foster a culture that supports and <unk>.

Powers our employees.

In recognition of our progress to date, we received a score of a for public disclosure reporting above the global average and this year's <unk> real estate assessment and.

And increased our overall score relative to last year.

We also remained committed to best in class governance practices, including ensuring we have the right board structure to continue to oversee the execution of our strategy.

And maximize value for shareholders. In addition to refreshing are bored with seven new independent members. Since 2015 are nominating committee recently adopted a resolution to recommend Jamie hard worker as the next lead Trust day in May 2023, when are currently trustee Richard Prairie steps down.

In summary, we believe the industrial sector continues to perform well despite valuations that had been impacted by higher interest rates and financial market conditions.

While our portfolio value is not immune to these effects. So far we have seen little softening intended demand.

We remain very focused on our development initiatives as well as leasing existing vacancy stabilizing our development projects maintain.

Maintaining high levels of occupancy and raising rats with that I'll turn the call over to Brandon to discuss investments in more detail.

Thanks, well.

2022 developments Bang on the sixth ongoing projects through the third quarter is approximately $192 million and we anticipate an additional $56 million to be funded by year end.

R N, Ohio development project that reached substantial completion on September 30th resides in a prime location in the east Columbus sub market right off I 70, and spend 1.1 million square feet.

Each class a warehouse distribution facility features modern specs, including a 40 so clear.

We have experienced a good deal tenant interest in the project completion, and we are hopeful a full building user will occupy the space in the coming months.

We also expect to deliver our Ocala and Indianapolis project.

Along with the previously leaf building at our Greenville, Spartanburg, three property project by year end.

Subsequent quarter and we entered into a 20 year ground lease with a data center user for approximately 100 acres at.

At our 402000 acre farm same parcel in Phoenix.

Initial annual Brown ran for these approximately 100 acres is estimated to be $5.2 million with 4% annual rental increases.

This is a great outcome is approximately 25% of the site is already expected to produce an initial 5.2% annual return on our original 101 million dollar purchase.

The list includes options <unk> for up to an additional 30 years as well as the purchase option after two years for $20 a square foot.

Okay, depreciation an asset value when compared to the five $5 per square foot, we pay for the land in December of 2021.

We continue to work on our development plans for additional projects at the site where user interest remains quite strong.

Looking ahead to 2023, we anticipate developments Bang for our ongoing six development projects will be approximately $113 million excluding partner promotes.

With that I'll turn the call over to Jane's to discuss leasing.

Thanks Brendan.

General tenant demand remains positive despite pockets of softening in certain markets due to some supply demand imbalances more.

More specifically rent growth in our target markets grew on average 25% year over year through the third quarter.

We currently estimate our industrial portfolios and place Lisa to be approximately 20% below market based on independent brokers estimates presenting us with significant future mark to market opportunities.

In fact, our industrial portfolio cash rents today are forecast to grow on average 43% for release explorations through 2028 or 33% when adjusted for rent Escalations based on independent Progressiveness.

Mark to market opportunity underscores or successful portfolio strategy to grow in key markets with high quality assets that are likely to attract strong and an interest.

They can see remains low and are stabilized industrial portfolio with occupancy of 99.4%, representing a slight increase when compared to last quarter.

The remainder of 2022, and then to 2023, we intend to focus on leasing are small amount of existing vacancy as well as stabilizing our development portfolio.

With respect to the remaining 2023 explorations, we expect expiring Reds to increase within a range of 40% to 50% based on current negotiations and third party broke restaurants.

Notable industrial leasing activity during the quarter, including the second generation three year extension with 3.8% bumps on in early 2023 exploration in Tampa, Florida, resulting in a 41% cash rental increase as well as a new lease for the remaining 36274 square feet of space in our Lakeland.

A facility for five years.

This lease resulted in a starting around $7 a square foot approximately 35% above our original underwriting assumptions with annual bumps of 4%.

Subsequent to quarter, and we have successfully leasing outcomes for an existing lease and a new lease on vacant space and our 510000 square foot industrial facility in Dallas, Texas, We extended of 2023 exploration for three years with 4% annual rent bumps and increased by 43% over the prior terms.

Cash base rent.

We also least 81000 square feet at our 211000 square foot industrial facility and career South Carolina for just over five years, bringing the ability to full occupancy.

Starting rental rate of $6.25 is roughly 17% above our original underwriting assumptions and the 4% annual rent bumps are very attractive we continue to receive indications of interest until the rfps for development portfolio and we will continue to provide updates this activity progresses with that I'll turn the call over to Beth to discuss.

Financial results.

Thanks, James third quarter revenue with approximately $80 million with property operating expenses are $14 million of which 85% was attributable to tenant reimbursements.

Adjusted company, that's all for the quarter was approximately $48 million or 17 cents per diluted punish shack.

We announced this morning that we are tightening of 2022 guidance range to 65 to 68.

[noise] diluted checked by raising the low end by a penny.

DNA quarter was approximately $9 million and we expect our 2022 G&A to be within a range of $35 million to $37 million, excluding certain advisory costs.

Or save some industrial portfolio was 99.8% leased at quarterback and our same store industrial NOI grew $6 two per cent quarter over quarter and 5.3% year to date.

R 2022, industrial Same-store annualized growth guided by 75 basis points at the mid point to a range of 5% to 5.5%.

At corner and approximately $96 five per cent of our industrial portfolio listed had escalation with an average annual rate of 2.4%.

The majority of our portfolio remains held for sale as of September 30th with the aggregate market value for these properties now estimated to be within a range of $95 million to $105 million and forecast in 2022 NOI of approximately $11 million.

Net dot to adjusted EBITDA at quarter end was seven one time.

We expect to decline by year end in conjunction with the maturity of the forward equity contracts how.

How do we set up the contact that quarter and are not yet to adjusted EBITDA would have been six three times.

September 30th we had an aggregate of $182 $1 million under unsettled for Thomas share sale contract, which we intend to settle a contract maturity in December at.

At quarter ends are unsecured NOI was over 93% of our total in Hawaii.

We currently have $450 million of borrowing capacity available under our unsecured revolving credit facility during the corner, we amended our unsecured credit facility extending the maturity of the revolving portion of July 2026th for added balance sheet flexibility and improve the transfer applicable margin and that covenant calculation.

Mm.

Consolidated that outstanding at quarter end with approximately $1.6 billion.

With over 84% of the step fixed.

Consolidated that had a weighted average interest rate of 3.1% and a weighted average changing majority of six five years a quarter and.

Continuing to keep us well protected against driving right with that I'll turn the call back over to well.

Thanks, Beth I will now turn the call over to the operator, who will conduct a question and answer portion of this call.

At this time I would like to remind everyone to ask a question. Please press star one will pause for just a moment to compiling Q&A roster.

Again, if you would like to ask a question. Please press star one.

Our first question comes from James Allen.

<unk> Your line is open.

Good morning gas.

Good morning.

Yeah can you give us some more color on 100 acres.

Phoenix that you rented subsequent quarter and.

Sure sure.

As I indicated in the prepared remarks, it's 100 acres.

We ground lease to data centre, operator, who plans to develop.

A data center park on that portion of the site.

The lease has an initial term of 20 years.

There are extension options for 30 years beyond that.

Okay. That's helpful.

Kind of kind.

Big picture, how are you balancing stock repurchases first deleveraging.

And would the truck referred via a potential target for deleveraging activity.

Yeah as I said, what what are the things that were monitoring is just making sure that we're keeping our overall leveraged within that 6% to seven times area.

Buyback has been a good use of capital this year compared to acquisitions.

Our funding needs for our projects.

Underway at the moment aren't huge next year, but we want to have capital available to exploit opportunity in the land bank.

Especially will farms Ah, where we had a.

Great outcome.

On that land lease that Brandon was talking about but we want to have capital available too.

Build.

As well.

The trust preferred.

Interesting because that's the sort of principle piece of our floating rate exposure.

But it's roughly a 15 year maturity, so while while it would be.

From a deleveraging standpoint, I guess, the highest highest return you sort of have to to balance that.

Compared to the shared shorter maturities in 2024 and 2025.

That's kind of helpful as helpful.

Kind of just Snigger picture what are you seeing in the acquisition in the disposition market today and Kenneth How're you taken about it going into 2023.

Well, the which is broadly speaking the transaction market.

Continues to be really slow.

And there's a lot of price discovery in the market.

That began with with the spike in inflation expectation and rising interest rates. So the market is pretty tough to peg today.

In terms of in our own activity today, and how we're looking at capital allocation presently where really as we said before.

On our ongoing development pipeline.

And future opportunities in our existing land bank.

So we're not presently active in the acquisition market or or monitoring it.

And on the disposition said, we mentioned in the comments that we have some properties in markets, where we have just one or two buildings that.

We'll look at it as sources of liquidity to to keep a revolver balances low next year and.

We can't give pricing information there, yet, but I will say that we've got the two.

Michigan assets in the market and there is very strong investor interest.

That is helpful. That's it for me thanks. Thank.

Thank you.

Again, if you would like to ask a question. Please press star one.

There are no further questions at this time and now to end the call back over to an island.

One more question from John Peterson with deference to your line is open.

Great. Thanks, Diane just in time.

So on the.

I guess on the development portfolio I know you've got a decent amount that is still needs. Some prelease seen it seems like demand for industrial still remains strong but.

I mean anything you're seeing in the macro environment that might be slowing down kind of the potential to lease some of those developments has expected yields changed at all just given everything that's been going on in the world.

Yeah, why don't I got one I'll take.

Okay discharge 80, if you wanted to talk about the the demand side for users wanting to start with that.

Okay.

So there's still quite a bit of demand in all of our markets.

We're tracking north of $10 million in every one of our development Margaret in 20th.

I will say that user demand as it may be slowed a little bit just from a decision making perspective.

Seems like maybe there's not as much preleasing right now and you're just taking a little bit more time to.

To make their decisions and it does seem like it's softer, but I just would point out that that's relative to a record setting year last year. This.

This your still seems to be on track to be the second highest absorption and history. So.

Oh, it feels softer and softer relevant to what it was last year and I do think that there is so.

Significant demand in the market and then we're gonna high positive outcome. So there may be a little bit of downtime beliefs numbers is releasing.

And then in regard to your question on yield.

I do think that there may be opportunities for our our projects to exceed our past yield expectations, just as a result of market rent growth that.

Has occurred during the development process of the buildings as well as an as you are aware, we do develop and joint venture.

And with rising exit cap rates that the partner promotes a very sensitive to that so between market rent growth and higher exit cap rate's lower promotes are after promote yield I think there's good there are opportunities there to exceed our prior guidance on yield.

Okay, Alright, that's helpful and then an office sales and I know the prior.

Indications where to get it done by year and I think you indicated summit.

Some of that might be pushing in the first quarter of next year. I mean can you pull back the curtain a little better means there are there have been a lot of retraining like if we'd been close to selling some of these buildings and then.

Obviously, the debt markets move in some of these deals fall through like can you give us a little more contact somehow I.

I think the CA property in New Jersey, which has the longest <unk> has been the one that's been most sensitive to that market conditions.

The two other big components of value or.

The Wells Fargo facilities.

And 17 O one market Street, where we're working with with buyers. We just don't have the contract with nonrefundable deposits, yet so we're making progress.

Unfortunately, it has become just a more challenging market to transacted.

Okay.

I apologize if I missed this but did you indicate what the mark to market is on your portfolio right now.

20% at the moment.

Does that gap or cash cash.

Cash cash okay.

Okay. That's all for me thank you.

Thank you John .

Our next question comes from that Kenmore by now with Bank of America. Your line is open.

Hi, good morning.

I see you're over the past few years, you've been checking the rating average lease term two shorter duration could you just comment on what you see is an appropriate level for your portfolio.

And how the release 10 year leasing pipeline.

Sure I think waited.

[noise] weighted average lease term has been trending shorter and will continue to do so.

I think if it makes it to five years, that's about the right balance between short term leasing opportunity and longer term stability of cash flow.

And in terms of.

Leasing on rollover, sometimes we get sort of three to five year extension is often on new construction tenants are making significant investments in those facilities and are negotiating for more term.

So it's a little bit hard to to to predict we just try to make the most of every if every negotiation to do what's what's right for each asset.

Okay.

And the final question for me in your opening remarks, you commented on higher least escalation escalators.

<unk> could you comment like Arizona portfolio level.

Sure we're at about 2.4% at the moment.

On leases that we completed this year, we had 3.4% of them about $4 million fee.

And we have signed some recent leases with 4% escalators. So that's still continuing to move in our in our favor overall.

Okay. Thank you for taking my question.

Great. Thank you.

Again, if you would like to ask a question. Please press star one.

There are no further questions at this time and now turn the call back over to.

Edwin closing remark.

Well once again, we thank you for joining us this morning.

And we encourage you to visit our website or contact Heather gentry, if you would like to receive our quarterly materials and in addition is always you may contact me or any other member of our senior management team with any questions. Thanks, again and have a great day.

This concludes today's conference call you may now disconnect.