LXP Industrial Trust

and answer session. If you would like to ask a question during this time, simply press the star key followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one again. At this time, I'd like to turn the conference over to Heather Gentry, Investor Relations. Please go ahead.

Thank you, Operator. Welcome to LXP Industrial Trust's second quarter 2025 earnings conference call and webcast. The earnings release was distributed this morning, and both the release and quarterly supplemental are available on our website at www.lxp.com 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 FFL 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, and Nathan Brunner, CFO, will provide a recent business update and commentary on second quarter results. Brendan Melanix, CIO, and James Dudley, Executive Vice President and Director of Asset Management, will be available for the Q&A portion of this call. I will now turn the call over to Will.

Thanks, Heather. Good morning, everyone. We produced strong second quarter results highlighted by the lease up of our 1.1 million square foot development facility in Greenville Spartanburg, same store NOI growth of 4.7%, and continued progress reducing our leverage with net debt to adjusted EBITDA of 5.8 times at quarter end. Our performance reflects the resilience of our core business amid a continuing soft industrial real estate environment and uncertain macroeconomic backdrop. Overall U.S. net absorption was approximately 30 million square feet in the second quarter. Of this absorption, 20 million square feet was in our 12 target markets indicating our markets held up relatively well compared to the broader market, with net absorption in five of our markets exceeding 2 million square feet. Large corporate users and 3PLs were the primary drivers of overall absorption, favoring higher quality properties. This trend bodes well for our portfolio, which is 92% comprised of Class A facilities with an average age of just over nine years. New deliveries are at a five-year low and are expected to continue declining. The construction pipeline in our 12 target markets is approximately 90 million square feet, down nearly 75% from the 2022 peak of approximately 330 million square feet. On the leasing front, year-to-date, we've leased approximately 2.4 million square feet with second-generation base and cash-based rent spreads of approximately 41% and 46% respectively. We reached a significant milestone this quarter with the lease of our 1.1 million square foot development facility in the Greenville Spartanburg market to a U.S. subsidiary of a global logistics company. This was a great outcome that resulted in immediate occupancy and low TI with annual cash base rent of approximately $6 million. Since 2019, we've developed 15 facilities, totaling 9.1 million square feet, of which 74% has been leased at an average estimated stabilized cash yield of 7.1%. We have had users touring our other big box facilities in Indianapolis and Central Florida, with the Indianapolis market much more active when compared to a year ago. Many of our 2025 expirations were addressed previously, And the remaining lease role this year represents just 1.2% of our ABR with rents that are approximately 30% to 35% below market. We're forecasting lower tenant retention for 2025 with year-end same-store occupancy of approximately 97% to 99%. And our current mark-to-market on leases expiring through 2030 remains attractive with in-place rents 17% below market based on brokers' estimates. On the investment front, during the quarter, we sold a property in Chillicothe, Ohio to a user buyer for approximately $40 million at a cash capitalization rate of 4.3%. This sale, along with another sale in the first quarter, bolstered our cash position. We accretively redeployed a portion of the Chillicothe sales proceeds to fund the repurchase of approximately $28 million of our floating rate trust preferred securities at a 5% discount to par. Based on the discounted purchase price, the current yield on the repurchase securities was approximately 6.6%. The transaction market for individual properties and small portfolios has been resilient. Given the stability we are seeing in the investment sales market, we are evaluating some modest capital recycling opportunities outside of our target markets for reinvestment that we would expect to be largely earnings neutral. We continue to concentrate our investment strategy in 12 target markets in the Sun Belt and select lower Midwest states, which account for approximately 85% of our gross assets. With a more focused geographic approach, we have the ability to scale and continue deepening our expertise and relationships within these markets, which provides both investment and operational advantages. Our target markets are experiencing positive demographic trends and are continuing to see investment in the onshoring of advanced manufacturing, reflecting business-friendly government policies and high-quality logistics infrastructure, among other attributes. In fact, in a recent CNBC report ranking the top states for business, 10 of our 12 target markets are in the top 10 states, and all 12 are in the top 20. further validating our investment thesis that our target markets stand to outperform. With that, Nathan will now discuss our financials, leasing, and balance sheet in more detail.

Thanks, Will. Adjusted company FFO in the second quarter was 16 cents per diluted common share, or approximately $47 million. This morning, we tightened our 2025 adjusted company FFO guidance to a new range of 62 to 64 cents. The low end was increased with the lease up of our 1.1 million square foot facility in Greenville Spartanburg, which is expected to contribute $3.7 million of base rent and operating expense reimbursement in 2025. The high end of the range has been revised given where we are in the year as timelines continue to be elongated regarding tenant decision making processes. We are now including approximately $2 million of gap rent contribution from prospective leasing activity across the remaining development facilities for the second half of the year. During the quarter, we produced same-store NOI growth of 4.7%, with our same-store portfolio 98% leased at quarter end. Our same-store NOI growth guidance for full year 2025 remains unchanged at 3 to 4%. This guidance assumes year-end occupancy for the same store pool approximately 97 to 99%. We reported second quarter G&A of approximately $9.6 million, and our expectations for 2025 G&A are unchanged at $39 to $41 million. On the leasing front, we increased our portfolio occupancy in the second quarter to 94.1%, up from 93.3% as of first quarter. As Will mentioned, we leased our 1.1 million square foot development facility in the Greenville Spartanburg Market during the quarter for an initial lease term of two years with two five-year renewal options. The initial base rent is $5.50 per square foot with 3.25% annual rent bumps. The tenant took occupancy of the facility in late May and cash rent commences August 1st. The estimated stabilized cash yield on our cost basis is approximately 8%. We also renewed our approximately 101,000 square foot lease in the Atlanta market in an outdoor storage facility in Minneapolis, both of which were 2025 expirations. We increased both the base and cash base rents at the Atlanta facility approximately 38% and extended the lease for five years with 3.5% rental bumps. The Minneapolis outdoor storage facility was encumbered by a five-year fixed-rate renewal option. We successfully negotiated a 10-year renewal with the tenant at the current in-place rent to enhance the marketability of this property as it is a near-term disposition candidate. We had two tenant move-outs at quarter end, which included our 248,000-square-foot facility in Houston and our 355,000-square-foot facility in Savannah. We collected two months of holdover rent at the Houston facility during the quarter and have prospective activity at both buildings. We currently have approximately 600,000 square feet of redevelopment projects underway. This includes a 350,000 square foot redevelopment in Orlando, which commenced in the quarter, and a 250,000 square foot redevelopment in Richmond. Both facilities are anticipated to complete in the first quarter of 2026, and produce yields on cost in the low teens. Moving to balance sheet, we continue to execute on our plans to reduce leverage and increase the proportion of hedged and fixed rate debt. As a reminder, in September 2024, we capitalized on a favorable market window and executed interest rate swaps to lock in fixed rates on $250 million of floating rate bank term line and $83 million of our trust preferred securities. leaving approximately $47 million of trust preferred securities unhedged in anticipation of potential opportunities to repurchase the securities. During the quarter, we repurchased approximately $28 million of trust preferred securities at a 5% discounted par. This transaction, along with the $50 million term loan repayment in January, increased our hedged and fixed rate debt to 99% of debt outstanding in 2025 and 2026, with a weighted average interest rate of 3.9%. Net debt to adjusted EBITDA was 5.8 times a quarter end, down 0.4 turns over the last 12 months. Reducing leverage remains a key focus for the company as we pursue our business plan and grow EBITDA. At quarter end, we had approximately $71 million of cash on balance sheet. With that, I'll turn the call back over to Will.

Thanks, Nathan. In closing, we're pleased with our second quarter results. We believe our portfolio of modern logistics facilities with strong tenant credit and a geographic footprint aligned with advanced manufacturing investment is highly desirable in the current market environment. We will continue to focus on creating value for our shareholders by increasing occupancy, marking rents to market, raising rents through annual escalators, and concentrating on our 12-market investment strategy. With that, I'll turn the call back over to the operator.

Thank you. We will now begin the question and answer session. If you have dialed in and would like to ask a question, please press star 1 on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star 1 again. We'll take our first question from Anthony Pallone at JPMorgan.

Great. Thanks. Good morning. Just first question on disposition. Can you talk about what drove the low cap rate on the sale?

Yeah. I mean, the situation there really involved, um, finding a user that wanted to own that building. So the execution was much better than if we sold that into the, um, you know, investor marketplace.

Okay. And then, um, also on capital markets, then can you, you mentioned still potentially select selectively selling some things. Can you give us a census to maybe order a magnitude that you have in the market to sell in the near term? And also just some broader comments on depth of market for your assets, maybe where cap rates are, you know, what types of buyers and what types of product do folks want right now?

Yeah, I think we would test the market with about $100 million of dispositions going forward. And I would say that... know after liberation day we were a little bit concerned that there would be volatility in the investment sales market and it's really held up very well so um we'll be back in uh the businesses creating some liquidity from our asset bases outside of our 12 target markets and and i think we're optimistic that we'll do uh very well okay and then just last one um

Can you talk about just what traffic has been like for leasing up some of the larger empty boxes?

Sure, Tommy. This is James. How are you this morning? So I'll start with Indy. So Indy has been, has really picked up really since fourth quarter of last year. There's been a lot of big box activity. There were two really good deals that got signed and not in a particular sub market, but in one of the major sub markets in Indy. Subsequent to quarter end, there are a couple of 800s that have gotten done. There's a 1.2 that's in process of getting done. So we've had some competition get taken off. And we've had a number of RFPs, a number of tours, and we're feeling confident that we're going to land one. It really hasn't been a building issue. It's been a size issue. We've just been kind of in the middle of the size of the sizes that have been leased. So optimistic on Indy. Central Florida generally has just been a little bit slower on the big box. We have had some renewed interest recently. We've got some interest from a pool building user that just kind of came across, and there are some deals that are in the works in the smaller, you know, kind of half a million size. So things seem to be picking up there, but, you know, promising activity for sure in Indy and then hopeful activity in Central Florida.

Okay, great. Thank you.

Thanks, Tony.

We'll move next to Todd Thomas at KeyBank.

Hi, thanks. First question with, you know, I wanted to ask about the comments you made around the year-end lease rate target for the same store pull in the 97 to 99% range. The portfolio is 98% lease today. You have four remaining expirations that represent a little over 100 basis points of occupancy. Can you provide an update on some of those expirations, the 380,000 square footer, in Indianapolis that's scheduled to expire tomorrow and curious if you have an update on the remaining three as well.

Sure, so the 380 you just mentioned is a no move out. We expect that we're going to get a little bit of holdover rent from them. Going back to the Indy market, there's been a significant amount of activity on that asset. So we're hopeful that we're going to be able to backfill that space relatively quickly. We'll see. But like I said, good activity there. Then we've got the two small 80,000 square footers. Those are both also move outs, one in Savannah and then one across the street or across the highway in Indianapolis. We have those out in the market. And then the last one is still unknown. It's 160,000 square feet in Phoenix. You know, if the tenant stays, great. There's the potential they may. It's across the street from one of their manufacturing plants. But if we get the building back, that's a pretty tight market with a really strong mark to market of around 50%. It's got 40 foot clear and right on the 303. Okay.

And then... TAB, Mark McIntyre:" For 2026 and any sense how you commented that tenant retention was was going to be a little bit lower in 2025 any sense what tenant retention may look like in 26 at this point, and are there any known move out that that you know are worth discussing right now.

So most of our lease expirations are kind of back here, back into the year in 26. We have started some dialogue with probably 25% of the tenants. And I would say for the most part, it's really positive on renewal. There are a couple of situations where tenants are contemplating their supply chain and whether or not the market that they're in is what fits for them. And then we have one situation with a small 3PO in Memphis that isn't sure the size still fits. So I think we're going to have strong retention, but we may have a few tenants here or there that move out. But overall, 19% mark-to-market next year, and we think we're going to have a successful overall outcome.

Okay. And then I wanted to shift to the land bank. It sounds like the build-to-suit market's stronger than it's been, or getting stronger, I should say. Curious if you're seeing that and if there are opportunities within the land bank that could materialize.

Hi, this is Brendan. Yeah, we've continued to respond to build a suit interest at both our Phoenix site and our site. I don't have anything further to report on that today, but I will comment that we've seen more potential interests of late at our Columbus site where we have about 69 acres remaining that so the immediate market area around our site there has tightened significantly. We recently had a 1.2 million square foot building there in the market lease. So there's good activity there. Columbus is looking strong. The decision making on build to suit is a little bit like what we've seen with other and commented on other large space decisions. So it's been kind of protracted. Some cases we, you know, in Phoenix, we've had cases where we've competed against existing spec product where there may be motivated landlords who can be competitive on pricing. And then in some other cases, we've had situations where RP processes that we've responded to where the tenant is deferred decision and then schedule constraints may favor existing buildings versus taking completion risk on new bills. But there's certainly interest out there, so we're optimistic that we'll land something in that space.

All right. Thank you. Thanks, Don.

We'll move next to Vince Teebone at Green Street.

Hi. Good morning. As you think about capital recycling, could either the cold storage or office JV properties or potential candidates for sale, or should we consider those properties or businesses you'll stay in for at least the foreseeable future?

I think for modeling purposes, you should think of those portfolios as being pretty static. I think there is one opportunity in the office, JV, that may turn into a sale candidate. But for the most part, I would think of them as being static portfolios.

That makes sense. And then just continuing on the point of capital recycling, I mean, is there a point where you would potentially shift from selling to purchase properties to consider buying back shares here in some form of leverage, neutral fashion, just given, you know, where stock trades on a discounting EV or, you know, main valuation metric. It seems like that could be an interesting avenue over, you know, further acquisitions. Curious how you're thinking about, you know, that opportunity and trade-off.

Yeah, I think so. I think the number one priority for us that's going to improve our valuation the most is generating more EBITDA from our vacancy and reducing net debt to EBITDA. If we can drive that down to five times, we have visibility on that. It's varying timelines to get there, but I think that's the thing that will help the valuation the most. In the context of share repurchase, if we could do some of both, that would be fine. I do think it's an important longer-term priority to recycle the capital out of our non-target markets and really focus on the 12 that are our core strategy. And there will be some tax implications where we want to complete some 1031 exchanges in order to protect our basis.

uh but um no share repurchase could be part of the mix but i really want to stay committed to reaching that um five times net debt at that leverage point got it thank you maybe just last one for me i just wanted to clarify a comment from nathan earlier about i believe it was two million dollars including the 25 guide from future leasing activity is that solely that two million know directly tied to either the two vacant million square footers or is that any vacant property right now so that would be kind of two million from any existing vacancy that you're able to lease through your end just kind of curious where you're you know you elaborate on that um kind of just get a sense of where you're how you're thinking about you know just the the new leasing opportunity through your end yeah the two million um really relates to the total opportunity set of the two big boxes

We also have another development that's two buildings, one's half-leased in central Florida. It's really those three projects that that opportunity relates to. And when you look at those three projects and you think about the annual run rate potential of those projects, it's something like $15 million of cash-based rent and OPEX reimbursement. And so I think that's important context. So it's a $2 million of contribution out of a pipeline that has $15 million of annual run rate when it's leased. But just to be crystal clear, it does not include any other second generation vacancies. Got it. Thank you. Thanks, Vince.

Next we'll take Mitch Germain at Citizens Capital Markets.

Thank you. So I'm curious about the move outs in the back part of this year. And I think you referenced three with one that you weren't sure about. I'm curious how many of those three were always kind of known move outs or was any of that a result of some of the recent macro and legislation issues?

So I guess I can run through them real quick. So the 380 and Indy, they moved to a competitive building that had tax abatement. So they were able to get tax abatement when we didn't have it. So it was an operating expense issue. The other two moved into new space where they actually consolidated. So the 80,000 square feet in Indianapolis moved one of their operations from Buffalo and moved into a 350,000 square foot building in Plainfield. And the smaller one in Savannah moved from 88,000 square feet into 800. So it was, you know, it was a size requirement and then a particular situation with tax abatement. Gotcha.

That's super helpful. And you previously had suggested, you know, sales were off the table, and it does seem like activities picked up more than you anticipated. I'm curious if that same phenomenon that's happening in the investment sales market is also happening within the leasing markets where while you anticipated things would be a little bit slower and you're seeing a little bit more resiliency.

I would say activity has definitely picked up. It's really about getting it from activity to across the finish line and getting signed. There seem to be a whole lot of starts where you're having conversations with tenants, you're even getting through the RFP process, you feel like a tenant's ready to sign and then you get a pause. So I think there's a lot more tire kicking. I think there's still concern over macro uncertainty. And I think if tenants can put decisions off, they are. I think you've also seen a lot of 3PL activity. It's really driven the market. and i think that's also indicative of the fact that tenants are concerned about uncertainty and maybe looking to three pls but both to cut costs and to give them flexibility great that's helpful any um last question for me any update on uh phoenix and the opportunity there uh no not not beyond what i commented on early or in the conversation so

continuing to see interest there and be optimistic about the potential there.

Great. Thank you. Thanks, Mitch.

And we'll move next to Jim Kamert at Evercore ISI.

Good morning. Thank you. I guess, Nathan, you mentioned some pretty attractive returns on redevelopment activity. Could you refresh my memory? What kind of dollar volume of redevelopments could LXP be looking at in the next 12 to 18 months?

David, you can take it. Yeah, sure, I can. The two redevelopments that were announced, just to summarize those, one, the larger project is a redevelopment project in Orlando that follows on an investment that we made last year where we acquired the The interest in the land beneath the 205,000 square foot building that we own there that was also encumbered by a below market building ways of that was at 2 dollars and 48 cents a square foot. So, in addition, we bought. an expansion of that building that our tenant had owned. So today we own a 351,000 square foot building, very well located in Southwest Orange County Submarket of Orlando, which is outperforming the rest of the market. The budget there is $9.4 million on the redevelopment. And then the 2nd project that we've announced is enrichment. It's a 252,000 square foot building that was originally developed as part of. A 4 building campus for a single user. They're the tenant exercise and early termination rights that they had for this particular building. And the benefit there to us is that that was income or by below market lease as well. So we remove that encumbrance there. The estimated cost of redevelopment is $3.7 million, which is. Principally just to separate the building systems and do some additional upgrades, expanding parking and things like that for the building to operate more independently from the other buildings. As Nathan shared in his prepared remarks, both projects are anticipated to complete in the first quarter of next year and produce yields on costs in the low teens.

Right now that's extremely helpful. I'm sorry I probably imposed the question. Beyond those you disclosed, what would you say, you know, just in the portfolio, can you identify material amounts of redevelopment opportunities is a better way to phrase, I'm sorry, you know, beyond what you've already identified. Is that a source of opportunity for Lexington?

And I think that there's additional opportunity in the portfolio. We're not quantifying it today.

Fair enough. And then finally, you know, you're very helpful to comments in Indianapolis still regarding lease up. It's more a question of, you know, just a large box that haven't been too many users, but For that and in the Florida large lease up, are you seeing the competing landlords panic in any regard, you know, sort of dropping rents or it's not something that we should be concerned about that, you know, sort of raised to the bottom here, it's just a lack of demand, but no one's sort of blinking yet on rents?

You know, there are some landlords that are willing to do that, but typically when they do that, and I can think of two in Indy right now, it's because they have something that's functionally wrong with their building or they're in a location that's not desirable. If you're down the middle with your asset, I think rents are going to continue to hold. I think where you'll see the softness in the market will be in free rent and tenant improvements rising.

Good. Thank you very much.

Thanks, Jim.

And that concludes our Q&A session. I will now turn the conference back over to Will Eglin for closing remarks.

Well, we appreciate everyone joining our call this morning, and we look forward to updating you on our progress over the balance of the year. Thanks again for joining us today.

And this concludes today's conference call. Thank you for your participation. You may now disconnect.