Buy LXP Industrial Before The Reshoring Boom Goes Mainstream

LXP Industrial Trust (LXP), a 100% industrial REIT, is highlighted as an attractive investment due to its strategic positioning in high-growth U.S. markets and strong Q1 2025 results, including 5.2% YoY same-store NOI growth and significant rental increases. The company's portfolio, concentrated in the Sunbelt and lower Midwest, benefits from reshoring trends and boasts a 6.6% dividend yield supported by an investment-grade balance sheet. With a forward P/FFO of 13.1, LXP presents a compelling value proposition compared to peers like STAG Industrial, offering potential double-digit total returns driven by FFO/share growth and dividend income.

Analysis

LXP Industrial Trust (LXP) presents a compelling case for income and value investors, particularly in a market environment marked by volatility in traditionally 'safe' stocks and low yields from broad market indices like the S&P 500 (SPY), which currently yields 1.24%. LXP, having strategically transitioned from a suburban office REIT to a 100% industrial REIT over the past decade, now commands a portfolio of 118 relatively new properties (average age 9.5 years, 91% Class A) spanning 57 million square feet, primarily in high-growth U.S. Sunbelt and lower Midwest markets where population and job growth significantly outpace national averages. The REIT demonstrated robust Q1 2025 results, with same-store Net Operating Income (NOI) growing 5.2% year-over-year, supported by a high same-store portfolio leased rate of 99.2%. Notably, recent leasing activity included a 59% cash rental increase on a Phoenix facility renewal and a 63% rental increase on an Atlanta facility extension, with annual escalators of 3.25% and 4% respectively. Management guides for full-year same-store NOI growth of 3.5% at the midpoint. LXP's tenant base is solid, with 47% of Annual Base Rent (ABR) from investment-grade tenants, including names like Amazon, Black and Decker, Walmart, and FedEx. The company is well-positioned to benefit from the reshoring of manufacturing, with over 80 large-scale projects announced in its 12 target markets, expected to add 75,000 new jobs. Financially, LXP maintains a net debt-to-EBITDA ratio of 5.9x, holds $71 million in cash, and secured $110 million from a recent property sale, supported by BBB-/Baa2 investment-grade credit ratings. This underpins its 6.6% dividend yield, which is covered by an 86% payout ratio and has seen a 5% five-year CAGR, with consistent annual increases since 2021. Trading at a forward Price to Funds From Operations (P/FFO) of 13.1, LXP appears attractively valued compared to peers like STAG Industrial (P/FFO 13.7). Since January, LXP has delivered a 2.4% total return, outperforming the S&P 500's 1.7% decline. Risks include three current box vacancies, which could push SSNOI growth to the lower end of the 3-4% guidance if not leased by year-end, a potential shift in market momentum away from Sunbelt regions, and the possibility that higher supply chain costs due to tariffs might temper capital investments in its markets.

Key Decisions for Investors

• Investors seeking income and value should consider LXP Industrial Trust, given its robust 6.6% dividend yield, strong Q1 2025 operating performance including significant rental uplifts, and strategic positioning in high-growth industrial markets benefiting from reshoring trends.
• Monitor the leasing progress of LXP's three vacant properties, as successful absorption is key to achieving the higher end of management's 3-4% same-store NOI growth guidance for the year.
• Evaluate LXP's current valuation at a forward P/FFO of 13.1, which appears favorable relative to peers and consider its potential for high single-digit FFO/share growth annually, potentially leading to double-digit total returns.
• Factor in the identified risks, including geographic concentration in the Sunbelt and the potential impact of tariffs on industrial capital investment, when assessing overall portfolio allocation.