Release Date: February 13, 2025
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- LXP Industrial Trust (LXP, Financial) achieved strong leasing outcomes with nearly 1 million square feet leased in the fourth quarter, resulting in significant rental increases.
- The company successfully sold its remaining consolidated office assets and opportunistically divested four industrial assets, creating considerable value.
- LXP redeployed proceeds into a build-to-suit and four Class A properties in Sunbelt markets at attractive pricing.
- The company executed forward interest rate swap agreements on $333 million of floating rate debt, effectively locking in fixed rates on 97% of its debt through year-end 2026.
- LXP reported strong same-store NOI growth of 5% for the year, demonstrating the strength of its leasing team and asset quality.
Negative Points
- LXP faced challenges in big-box development leasing, with negotiations not resulting in a lease at a 1.1 million square foot facility in Ocala, Florida.
- The company anticipates lower tenant retention in 2025 due to an uncertain environment and delayed decision-making.
- Interest expense is expected to increase due to the refinancing of bonds and a step-up in swap rates on term loans.
- LXP's 2025 adjusted company FFO guidance reflects potential impacts from big-box leasing, with the low end assuming no leases executed.
- The company is operating in an uncertain environment, with tenant activity increasing but decision-making remaining slow.
Q & A Highlights
Q: Can you elaborate on the interest in your larger development projects and any changes in stabilized yield expectations?
A: James Dudley, Executive Vice President, Director - Asset Management, noted increased activity in January, with diverse tenant interest including construction-based, e-commerce, and 3PLs. Brendan Mullinix, Executive Vice President, Chief Investment Officer, stated that yield expectations for larger buildings remain around 6%, consistent with prior guidance.
Q: Are there any known tenant move-outs affecting 2025 guidance, and what renewal rate assumptions are being made?
A: James Dudley mentioned a known move-out in Houston and a contraction option in Richmond. The guidance reflects conservatism due to uncertainty, with most expirations in the latter half of the year.
Q: What is the competitive landscape for your million-square-foot development projects?
A: James Dudley explained that in Indianapolis, there are four competitors for single tenants and 11 for split buildings. Greenville has fewer competitors, and Central Florida has one direct competitor, expanding to five when considering a broader area.
Q: What is the near-term capital allocation plan given the current NAV discount?
A: T. Wilson Eglin, Chairman and CEO, stated that the focus is on core markets, with potential sales in non-core markets. The priority is reducing leverage to improve valuation, with interest in build-to-suit projects for yield premiums.
Q: What are the main headwinds affecting the lower end of 2025 guidance?
A: Beth Boulerice, CFO, highlighted increased interest expenses due to bond refinancing and term loan rate increases, along with reduced capitalized interest following project completions.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
