LXP Industrial Trust

Good day and thank you for standing by. Welcome to the LXP Industrial Trust First Quarter 2022 Earnings Call and Webcast. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star 0. I would now like to hand the conference over to Heather Gentry. Please go ahead.

Thank you, operator. Welcome to LXP Industrial Trust's first quarter 2022 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 investor section and will be furnished to the SEC on a Form 8-K. 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. 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 and unit 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. On today's call, Will Eglin, Chairman and CEO, Beth Bulleris, CFO, Brendan Mullenix, CIO, and Executive Vice President James Dudley will provide a recent business update and commentary on first quarter results. I will now turn the call over to Will.

Thanks, Heather. Good morning, everyone. Before I get into our first quarter update, I want to provide some additional color on the board's strategic alternatives review process. There has been quite a bit of misinformation in the market about the board's decision on April 8th to suspend the process. We feel it is important to ensure that shareholders have a clear understanding of the facts, including the factors that went into the Board's decision. First, I want to reiterate that the Board has been focused on transforming LXP over the last several years, including the announced $550 million joint venture with Davidson Kempner last December that further enhanced the value of our company. Throughout this transformation, the Board has been open-minded and committed to regularly reviewing LXP's strategy against other alternatives to ensure we are pursuing the best path to maximize shareholder value. The Board had also evaluated the potential merits of running a private process, but determined to publicly announce the strategic review process in the spirit of transparency with shareholders. Since launching the review in February, we conducted a comprehensive process with three independent financial advisors incentivized to execute a transaction. We engaged and signed NDAs with a broad universe of buyers, both strategic and financial. However, as the process progressed, financial markets became increasingly volatile due to rapidly changing inflation forecasts and rising interest rates. This resulted in a sharp increase in borrowing costs of over 100 basis points, which had a disproportionate near-term impact on the private market interest in our portfolio, given its longer weighted average lease term. Parties cited these factors and that any proposal would be contingent on significant improvements in financing markets as the main reasons why they ultimately chose not to submit actionable indications of interest for the whole company. Therefore, the Board unanimously determined that the best path forward at this time was for LXP to suspend our process and continue to execute our strategy while completing the final stages of our portfolio transformation and capitalizing on the mark-to-market opportunity embedded in our portfolio. It is important to note that while we decided to suspend the process, the board and management remain open to all opportunities to maximize value for our shareholders, and we expect there to be inherent value creation opportunities as we execute on our development pipeline and during 2024 to 2027 as leases roll. We hope this additional context is helpful and that it provides clarity regarding the misinformation that we've heard over the last several weeks. Beyond the information we've just provided, We do not intend to provide further details on the process, and we ask that you keep your questions to our results and prospects going forward. Turning to our first quarter performance, it's clear we began 2022 with strong portfolio performance reflecting the benefits of owning industrial real estate that is producing growing rents. With over 2.3 million square feet leased in our warehouse distribution portfolio during the quarter, We increased base and cash-based rents 28% and 18% on average, respectively, and we successfully negotiated average annual escalators of 3.3%, well above our historical results. Last quarter, we began providing a forecast of the mark-to-market opportunity in our industrial portfolio based on estimates provided by independent brokers. Currently, the warehouse distribution leases in our portfolio are approximately 16% below market. The mark-to-market opportunity, which considers our rent today compared to estimated market rent at lease expiration through 2027, is forecasted to grow to an average of approximately 42% during this time period. The weighted average lease term of our warehouse distribution portfolio is 6.8 years, and we are approaching a heavy period of lease rollover from 2024 to 2027 when 45% of our ABR expires. We believe our average annual industrial rental escalations of 2.5% should increase as many new leases in our markets are being signed with 3% or higher annual escalators further improving our internal growth prospects. On the investment front, we acquired approximately $72 million of industrial assets during the quarter and funded $69 million towards executing on our ongoing development pipeline. At quarter end, we had five development projects underway comprised of eight buildings in target markets of Phoenix, Greenville-Spartanburg, Indianapolis, Columbus, and Central Florida. Deliveries are expected starting in the third quarter through the second quarter of 2023. Spec development continues to provide us the best opportunity to obtain favorable returns for new Class A industrial assets, with stabilized asset purchases used more as a vehicle to fill 1031 exchange needs. As we deliver and stabilize our development pipeline, net debt to adjusted EBITDA is expected to range from six to seven times as we execute on these opportunities. Subsequent to quarter end, we sold approximately $55 million of assets, including one office property for $7.8 million and two industrial properties in Shreveport, Louisiana, which were outside of our target markets. All of our remaining office assets, apart from our Palo Alto office building, are in the market for sale. Also, subsequent to quarter end, we took two important actions in keeping with our commitment to positioning LXP to deliver enhanced shareholder value. First, following the suspension of our strategic review process on April 8th, we began repurchasing shares under our existing repurchase authorization as part of our ongoing commitment to returning capital and driving value creation for shareholders. We repurchased approximately 1.2 million shares for an average price of $13.41 per share before our earnings blackout period. There are 7.7 million shares remaining under our existing repurchase authorization, and we expect to continue repurchasing shares as market conditions warrant. As part of our ongoing board refreshment process, in April we announced the appointment of Arun Gupta, who will serve as an independent trustee on our board. We're pleased to welcome Arun formally to our board. Arun brings over two decades of venture capital experience with extensive investing, cybersecurity, and technology expertise, all focus skills we were interested in adding to our current board. We will continue our ongoing board refreshment process and expect to appoint another candidate by the end of 2022. On a personnel note, Lara Johnson, one of our executive vice presidents, has informed us of her intention to resign at the end of this month to spend more time with her family. Lara has been an important part of our transition, handling the majority of our disposition activity. I, along with the rest of the management team and the board, want to thank Laura for her consistent hard work and many accomplishments during her years at LXP. We are well staffed with a deep bench of talent to step in and fill her shoes as she transitions out of her role. Our goal is to fill her position from within the organization. In summary, with our portfolio transformation substantially complete, We will continue to enhance our portfolio primarily through the acquisition of partially stabilized assets that afford us attractive leasing and releasing prospects, developing high-quality warehouse distribution assets in our target markets, and capitalizing on opportunities to increase rents. We are focused on maximizing value for shareholders and remain open to all opportunities to do so. With that, I'll turn the call over to Brendan to discuss investments in more detail.