LXP Industrial Trust Q1 FY2025 earnings call

• Industrial fundamentals held relatively steady despite tariff uncertainty. U.S. net absorption was 23 million sq ft in Q1, 19 million in target markets. Supply side: new starts low, construction pipeline in target markets down 75% from 2022 peak.
• Portfolio is 91% Class A, average age 9.5 years. Leasing transactions slower due to limited 2025 lease roll (<3.5% ABR) and longer tenant decision times. Current mark-to-market on leases expiring through 2030 ~18%.
• Investment strategy: Concentrated on 12 target markets in Sunbelt and lower Midwest, 85% of gross assets there. Benefiting from onshoring of advanced manufacturing. Sold two industrial assets for ~$75M at 4.1% cap rate.
• Financials: Adjusted company FFO $0.16/share ($46M) in Q1. Same-store NOI growth 5.2%, same-store portfolio 99.2% leased. 2025 same-store NOI growth range 3%-4%, adjusted company FFO range $0.61-$0.65/share. G&A $39M-$41M. Repaid 50M unswapped portion of $300M term loan. Cash on balance sheet $71M, proforma $110M after Ohio property sale. Tenant base: 47% ABR from investment-grade tenants.

In the first quarter, adjusted company FFO was $0.16 per diluted common share, or approximately $46 million. Same-store NOI growth was 5.2%, with the same-store portfolio 99.2% leased at quarter-end. The portfolio is comprised of 91% Class A industrial facilities with an average age of nine and a half years. U.S. net absorption was 23 million square feet in the first quarter, 19 million square feet of which was in LXP's 12 target markets. New starts remain low, and the construction pipeline in the 12 target markets is approximately 87 million square feet, down almost 75% from the 2022 peak.

• Maintaining 2025 same-store NOI growth range of 3% to 4%.
• Maintaining 2025 adjusted company FFO range of $0.61 to $0.65 per diluted common share. The low end of this guidance assumes no leasing of big boxes in 2025, and the high end represents all three big-box leases commencing in the second half of the year.
• Expectations for 2025 G&A unchanged at $39 million to $41 million.

• Tariff uncertainty impacting tenant demand.
• Market uncertainty affecting disposition activity.
• Uncertainty around tenant retention beyond 2025, especially with heavier expirations in 2026 and 2027.

Q: I know you don't have a lot of expirations in 2025, but as you start to look out the next few years, that ramps. Can you identify any known move outs as we start to look out the next few years?

A: Looking at '26 and '27, it's too early to tell. We like the tenant base we have there, and we think that we're going to be successful in renewing a lot of those tenants, but much of the '26 expirations are back-end weighted, so we're going to have to wait and see on that.

Q: With regards to the three large boxes, what do yields and rents look like there at this point? Has there been any diminution in the market, or are those held steady?

A: We haven't really seen anything come that's created a lot of movement off the market rents. Maybe there's been a little bit of a slight markdown, but for the most part, what we've seen is it's been more in the pre-rent TI, so we've seen on the big-box leasing, we've seen TI kind of tick up from mid-single digits to low-double digits in some cases, and we're back to seeing almost a month per year of free rent being offered as a concession, but not as much pressure on the face rate. And with respect to yield, we're not changing our prior guidance from the stabilization at around a six.

Q: Any else on the disposition side over the balance of the year that you're thinking about?

A: Not at the moment, Tony. We made two really good sales, but while we're in this sort of 90-day pause around tariff policy, we've sort of gone pencils down on disposition activity. We do have a longer-term strategic objective of continuing to concentrate on the 12 markets. We made some good progress there last year. We normally would have put some of that cash, we freed up from the sales back to work, but at the moment, we like cash a lot, and we'll just wait and see how things unfold in the next 60 days or so.

Q: Unidentified Analyst: Hi, good morning. This is AJ on for Todd. I appreciate you guys taking my question. First, just wanted to ask about the redevelopment you announced this morning. Is this a change in the strategy, or was this always the plan and previously included in guidance?

A: So what we had is we had a contraction option from a tenant that had a four-building campus, and the rest of the campus goes out through 2030. So it could have been that they continued in and stayed through 2030, or they had the option to contract, but the buildings that we acquired were always meant to be single if they needed to be. So it's a good opportunity for us to redevelop this property, which basically means separating it from the others and marketing it and hopefully getting a really good tick on the marked market.

Q: Unidentified Analyst: Okay, that's helpful. So what impact does the redevelopment have on guidance? So perhaps impacts around it being taken out of the same store pool, so the same store NOI, anything regarding cap interest or anything else that will impact ASFO?

A: AJ, it's Nathan here. So we had always anticipated that this property would be taken out of the same store pool, so when we put out guidance of 3% to 4% same store NOI growth for the year, we had this property excluded because we knew that this redevelopment was part of that business plan. As James described, the scale of this particular project clearly puts it into the bucket of a project that should be in the redevelopment pool. And then specifically on Q1, the inclusion or exclusion of this particular property really had no impact on same store NOI growth because this redevelopment project did not start until the end of the quarter.

Q: Unidentified Analyst: Okay, no, that's helpful. That kind of leads to the next question on kind of what interest that market and perhaps that building you're kind of expecting to see, and also what is the stabilized expected yield to be following the redevelopment?

A: So I guess the good news is that it's the only building of its size in that market. Richmond's had a low vacancy rate, so we think that when we have the building ready to go, we're going to get a lot of good activity, and so I mentioned a strong mark to market. And then just adding on that, you sort of asked about return profile, and the way we've thought about it is the incremental rent that we may achieve on getting this property back and taking the rent up to market is something like 700 grand per annum, and the capital investment that we're expecting here and disclosed in materials today is around $5 million. If you think about the yield on capital investment there, it's something like mid-teens yield.

Q: John Petersen: Great. Thank you. Good morning, guys. Just looking at your lease expiration maybe through the end of 2026, I'm just curious if we look at the markets. Are there any of those markets where you're particularly, I guess, excited in terms of upside on leasing spreads?

A: Yes. I mean, we still like the Sunbelt markets. We think that that's where our best opportunity is from market to market. We feel like we've got some really good new product that's going to have the first generation role in Phoenix where we're going to significantly mark those to market. We've got some really strong assets in Dallas as well. Sunbelt is where we're looking for the really strong market to market.

Q: John Petersen: Okay. Are you guys seeing any? I know you mentioned this early, but with tariffs and everything going on, are you starting to see any signs of inventory building in the near term, maybe higher utilization? I think Prologis kind of alluded to some of that on their call. And then maybe any sort of demand related to supply chain reconfiguration, I guess, specifically thinking about auto manufacturing. Is there any of that to really call out?

A: So what we've seen, I guess, related to tariffs is we've seen a couple of different avenues by tenants. We've seen some that have just kind of continued on with their business plans through the tariffs. We've seen that through consolidation in some of the markets that they had planned ahead of time. We've also seen the acceleration of demand in some circumstances around bringing in additional product and trying to find room for that. Solar panels are one of the items I would call out there. And then we've seen some kind of take a step back and pause on their plans and reevaluate what they were planning to do and trying to figure out, like I think everyone else is, what this ultimately looks like so they can plan around it from a supply chain perspective.

Q: John Petersen: Okay. And then last question for me. I think a couple of weeks ago, Amazon, there were headlines about them wanting to accelerate investment in warehouses in the U.S. How do you think about some of the larger e-commerce players or maybe what are you seeing in terms of demand there? And could that potentially be good news for your three million square foot recent developments you're trying to lease up?

A: They're definitely still in the market. We'll see if it plays out for us in any of our big boxes. But we've seen their activity pick up. They're definitely kicking the tires. They're not the only ones. There's some major retailers that are in the market right now looking to do some of the same things.

Q: James Kammert: Thank you. Good morning. I know it's a way out there and maybe you can't speak to it, but you've got the two big lease expirations potentially with Nissan in early '27 and kind of thematically with the line of questioning on the call. They've been kind of a struggling operator. Could you just talk a little bit about what sort of notice they need to provide you or are you talking about those renewals and kind of how they're doing in those facilities? Just kind of get a sense of what your expectation is for those two leases.

A: Maybe before James specifically addresses how your discussions might play out, just with regard to Nissan, you're right, we have the two facilities, at least in Nissan and Jackson and Nashville. The U.S. market is critical to Nissan. It's about 40% of their total sales. And although we've seen the global efficiency program that's been announced, all of the recent public commentary has really focused on reconfirming their commitment to the U.S. plants. And very, very recently they've come out and said that they're actually intending to max production in these U.S. plants. I might go ahead off to James just to address the specifics around the renewal. So our two big warehouses are directly tied to the manufacturing plants. The one in Nashville is tied to the plant via private road. They also invested a significant amount of capital to bring suppliers in-house so that they can get things just in time to the manufacturing plant. Similarly in Canton, which is outside of Jackson, we've been talking to them about potentially having some additional investment, probably of their own dollars, but just investment of doing something similar to what they did in Nashville. So investing millions of dollars into bringing suppliers in. They've also – both facilities have low rent. Nashville's been a really tight market. So if something were to happen, which I don't anticipate, we do have a really strong facility there in Nashville that would be functionally available to someone else, but they have preferential renewal options as well. So I think we have a really high probability of keeping them with all those different factors.