Release Date: May 02, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- LXP Industrial Trust reported first quarter results consistent with expectations, focusing on development, leasing, and capitalizing on build-to-suit investment opportunities.
- The company leased approximately 1.6 million square feet after the quarter end, anticipating strong second quarter volumes with active lease renewal negotiations.
- LXP Industrial Trust has increased its 2024 same-store NOI forecast to 4%-5%, up from the previous range of 3.5%-4.5%, indicating potential growth in net operating income.
- The company committed to a build-to-suit project of approximately 625,000 square feet, highlighting its strategy to invest in newly constructed assets on accretive terms.
- LXP Industrial Trust maintains good liquidity with effective management of debt maturities extended out to 2027, aiming to achieve a lower leverage target.
Negative Points
- Renewals are taking longer to negotiate due to macroeconomic uncertainty and a disconnect between market rents and tenants' bargaining perspectives.
- The company faces challenges in the leasing market, as evidenced by slow leasing volume in the first quarter and flat quarter-over-quarter rents in target markets.
- There is a competitive pressure in the market, with other owners possibly offering more aggressive rents and concessions to attract tenants.
- LXP Industrial Trust's development pipeline stabilization is still in progress, with some uncertainty around the lease-up of larger to-be-stabilized buildings.
- Despite maintaining guidance, the company notes potential offsets such as higher interest expenses and the impact of developments not yet contributing to same-store NOI.
Q & A Highlights
Q: Can you provide some color around the interest in the Florida and India buildings and what you're seeing regarding leasing?
A: (T. Wilson Eglin, CEO) - We have good activity in Florida and are hopeful for a deal soon. In India, despite high interest, no significant leases have been executed yet. The market is slow, and educating tenants about increased rents is a challenge. We may need to become more aggressive in markets with high supply.
Q: How should we think about the development assumptions in your guidance, given the increase in same-store NOI growth forecast?
A: (T. Wilson Eglin, CEO) - Development assumptions remain the same. The increase in same-store NOI is mostly due to successful renewals post-quarter, which allowed us to tighten up the guidance.
Q: Why doesn't the increase in same-store guidance flow through to an FFO increase?
A: (T. Wilson Eglin, CEO) - The main reasons are higher interest expenses and the fact that newly placed into service developments are not yet in the same-store pool.
Q: Can you discuss your current yield expectations for speculative projects and how competitive dynamics are affecting leasing strategies?
A: (T. Wilson Eglin, CEO) - Yield expectations remain at 6 to 6.5%. We've seen some owners offering more concessions and free rent to attract tenants. Our strategy is to leverage the superior attributes of our properties but acknowledge that we may need to adjust to market conditions.
Q: What impact are geopolitical tensions and supply chain disruptions having on tenant strategies?
A: (T. Wilson Eglin, CEO) - Tenants are moving forward with securing additional space to get closer to consumers, moving away from the safety stock strategy seen during COVID. The focus is on shoring up supply chains despite disruptions.
Q: Have there been any recent discussions with Amazon regarding their space requirements?
A: (T. Wilson Eglin, CEO) - Amazon is looking for more regional distribution centers to enhance same-day delivery capabilities. They are active in the market with various size requirements.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
