LXP Industrial Trust Q4 FY2025 earnings call

Thank you, Heather. Good morning, everyone. Our fourth quarter marked the conclusion of a successful year, driven by meaningful achievements in leasing, healthy occupancy gains, strategic property sales, and continued progress strengthening our balance sheet. We delivered on our key operating objectives in 2025, notably reducing leverage from 5.9 times to 4.9 times net debt to adjusted EBITDA and increasing occupancy 350 basis points to 97.1%. Additionally, we leased nearly 5,000,000 square feet in 2025 with attractive mark-to-market outcomes of approximately 28% on a cash basis, excluding fixed rate renewals. We were encouraged to see market fundamentals continue to improve during fourth quarter, with our target markets driving over 66% of the overall U.S. net absorption of about 54,000,000 square feet. Larger users made up the bulk of the demand, favoring facilities exceeding 500,000 square feet that built within the last five years. Several of our target markets, including Phoenix, Indianapolis, Dallas–Fort Worth, and Houston, led this demand. Reflective of an improving leasing market, in the fourth quarter, we leased over 2,000,000 square feet at attractive base and cash-based rental increases of approximately 27% and 23%, respectively, excluding fixed rate renewals. We have also made good progress on our 2026 expirations. To date, we have addressed roughly 3,000,000 square feet, or 41% of our total 2026 rollover, achieving an average cash rental increase of approximately 28%, excluding two fixed rate renewals. On the sales front, we exited five non-target markets in 2025 and continue to prioritize investing in our 12 target markets, which currently account for 87% of our gross book value. Total disposition volume for the year was $389,000,000, including $116,000,000 from non-target market sales in the fourth quarter, with an average cash capitalization rate of 5.7% on stabilized assets sold during 2025. This volume included the sale of our Indianapolis and Ocala development properties to a user buyer in September at an implied capitalization rate of approximately 5% and a 20% premium to our cost basis. The capital generated from asset sales was primarily deployed to strengthen our balance sheet by reducing high coupon debt. Additionally, we acquired one property for a 1031 exchange requirement in September and repurchased approximately 277,000 shares at an average price of $49.47 in December 2025 and January 2026. At year end, we held approximately $170,000,000 in cash on our balance sheet. While cash balances are currently weighing on earnings, we believe liquidity is valuable as we head into a period we can create significant value in our land bank. Strengthening our balance sheet was one of our primary objectives in 2025. We successfully accomplished this goal and entered 2026 in a strong financial position. Our capital allocation priorities will now primarily focus on disciplined investment and external growth opportunities, mainly in our land bank, and executing opportunistic share repurchases, provided they do not impact the balance sheet progress we made in 2025. Acquisition activity is expected to be limited to 1031 exchanges, which may happen from time to time as we exit non-target markets. Through our development program, we have developed 15 facilities since 2019 at a 7.1% weighted average stabilized yield on first-generation leases and generated sale proceeds of $91,000,000 in excess of our cost basis. At year end, our development program was 98% leased or sold. We have continued to closely monitor market fundamentals where we own development land, evaluating both build-to-suit and speculative development opportunities. In the West Valley of Phoenix, where we own a 315-acre land site, we have observed an acceleration in leasing activity for facilities over 1,000,000 square feet. Eighteen months ago, there were ten 1,000,000-square-foot buildings available in the West Valley. Since then, eight of these buildings have leased or sold to users, and the remaining two are in advanced stages of negotiations. Consequently, there will be no 1,000,000-square-foot facilities available in the West Valley, and nothing is currently under construction. In addition, construction costs are roughly $20 per square foot lower than they were at the market peak on a 1,000,000-square-foot spec project. With this favorable backdrop, we will be breaking ground on our Phoenix land site. Project completion is anticipated for 2027, with an estimated budget of $120,000,000 and a stabilized cash yield within a range of 7% to 7.5%. In summary, we successfully executed our core strategic initiatives in 2025, including enhancing our balance sheet, addressing vacancy at our three big box development properties, increasing portfolio occupancy, and achieving attractive leasing outcomes. In 2026, our priorities will center on strategic capital deployment, specifically pursuing disciplined growth opportunities, making opportunistic share repurchases, leasing our remaining vacancies, and generating robust mark-to-market outcomes. Our high-quality portfolio, consisting primarily of Class A assets in the Sun Belt and Lower Midwest, is well positioned to benefit from improving market fundamentals and the positive momentum associated with advanced manufacturing investments.

In the fourth quarter, adjusted company FFO was $0.79 per diluted common share, totaling approximately $47,000,000. For the full year 2025, adjusted company FFO was $3.15 per diluted common share, or $187,000,000. The portfolio occupancy increased to 97.1% at year end 2025, compared to 93.6% at year end 2024. Full-year same-store NOI growth was 2.9% and flat in the fourth quarter compared to 2024. The 2026 adjusted company FFO guidance range is $3.22 to $3.37 per common share, representing 4.6% growth at the midpoint. The same-store NOI growth guidance for 2026 is within a range of 1.5% to 2.5%, with components including a 3.25% positive contribution from contractual rental escalators and lease renewals, offset by a 1.25% impact from lower occupancy and higher rent concessions.

Adjusted company FFO in the fourth quarter was $0.79 per diluted common share, or approximately $47,000,000. For the full year, we produced adjusted company FFO of $3.15 per diluted common share, or $187,000,000. This morning, we announced our 2026 adjusted company FFO guidance range of $3.22 to $3.37 per common share, which represents 4.6% growth at the midpoint. This guidance assumes the proceeds from the properties sold in the fourth quarter will be redeployed into the development project in Phoenix, although these asset sales and capital redeployment are a drag to 2026 FFO, that will be a source of earnings growth in future years. Our guidance does not assume any other dispositions or investment activity. Our portfolio occupancy increased to 97.1% at year end, compared to 93.6% at year end 2024, primarily reflecting the successful outcomes for the three big box development properties in 2025. Turning to the same-store portfolio, full-year same-store NOI growth was 2.9% and flat in the fourth quarter when compared to the same time periods in 2024. Consistent with our commentary on our last earnings call, our fourth quarter same-store NOI growth reflects lower occupancy in the same-store portfolio of 97.3% as of year end 2025 versus 99.5% in 2024. We are estimating 2026 same-store NOI growth to be within a range of 1.5% to 2.5%. At the midpoint of 2%, the components of same-store growth include a positive contribution of 3.25% from contractual rental escalators and lease renewals, offset by a 1.25% impact associated with lower occupancy and higher rent concessions in the form of free rent. Our 2026 guidance range assumes average occupancy in the same-store pool of 96% to 97% versus average occupancy for this same pool of properties of just over 97% in 2025. The low end of our adjusted company FFO and same-store guidance assumes $500,000 of credit loss. G&A was approximately $11,000,000 in the quarter, with full-year 2025 G&A of $40,000,000 within our expected range. We expect 2026 G&A to be within a range of $39,000,000 to $41,000,000, broadly in line with 2025.

Certain factors and risks could cause LXP Industrial Trust’s actual results to differ materially from those expressed or implied by forward-looking statements. These include market fundamentals changes, credit risk, development project execution risks, and changes in interest rates or debt markets. For example, in the guidance, a prudence factor led to including $500,000 credit loss in the low end of 2026 guidance due to distress observed in certain sectors.

Q: Real interesting on your planned development here in Phoenix, Dreams and Olive. I am just curious, obviously it sounds like the market has definitely improved. Do you have sort of a quiet list of prospects that you are talking to already?

A: It would not be surprising to me if there was interest in the facility before it is finished. There are prospects hunting for that size space now, and there really are not any choices. So we think it is an extremely good setup for us and almost the best one that I have seen, candidly.

Q: Maybe for Nathan, I just wanted to ask about the full-year same-store NOI growth that—2.9%—you know, was unchanged in the quarter. For the full year, though, it came in a touch below your prior forecast, 3% to 3.5%, which was revised lower last quarter from 3% to 4%. I am just curious, in terms of the trends later in the year, what drove that miss versus your budget, if you could talk about that a little bit?

A: Our year-end same-store occupancy of 97.3% is within the range of expectations that the 3% to 3.5% range was set on. The difference was primarily driven by marginally higher property expense leakage across about half a dozen properties. Some of them—two or three of them—are vacant properties where we are carrying the full OpEx burden, and two or three of them are leased properties that have property expense caps in the leases where we had some unbudgeted expenses that ultimately went through the caps.

Q: I wanted to—follow up a bit more on the cash same-store NOI guide. I believe you said, Nathan, it is going to be about 3.25% contribution from both contractual bumps and spreads. And I believe contractual bumps are just south of 3%, so it does not seem like spreads are going to be much of a contributor. So maybe you can just talk about—you know, I am guessing fixed rate renewals are going to drag that figure down, excited from, you know, like 28% spreads on, you know, 2026 rollovers you already mentioned. But how can we think about spreads with the fixed rate renewals or contribution to spreads in 2026? Because it seems to be pretty minimal given the data point I just cited?

A: The 3.25% positive contribution is contractual rent escalators, which are about 2.8% on average across the portfolio. The second component is renewal rent spreads. The 1.25% drag reflects the offset from vacancy. It captures some rent spread activity around new leases. We had two large fixed rate renewal options that put a drag on it, but we are pretty much through those for 2026.

Q: Hey. Good morning, guys. Any comments—I know you just did a bigger spec development, but anything on the build-to-suit front? Some of the companies in the net lease space seemingly, they are increasingly getting to the industrial BTS deals. Does that pose more competition for you guys down the line? And I do not know if that is something that you would consider, given this large expected spec that you have going on right now?

A: The build-to-suit space remains interesting to us, and the supply dynamic is making it look more encouraging, particularly in our land bank. We have been responding to build-to-suit inquiries, and the supply dynamics make us more favorable than some competitors. We will consider both spec and build-to-suit.