LXP Industrial Trust misses on earnings expectations. Reported EPS is $0.04 EPS, expectations were $0.16. LXP Industrial Trust isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Good morning, my name is Dennis, and I will be your conference operator today. At this time, I would like to welcome everyone to the LXP Industrial Trust First Quarter 2024 Earnings Call and Webcast. All lines have been placed on mute to prevent any background noise. After the speakers remarks there will be a question and answer session. [Operator Instructions]. I would now like to hand today’s call over to Heather Gentry, Investor Relations. Please go ahead.
Heather Gentry: Thank you, operator. Welcome to LXP Industrial Trust first quarter 2024 earnings 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 Investors 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 unitholders 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 Boulerice, CFO; Brendan Mullinix, 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.
Will Eglin: Thanks, Heather. Good morning everyone. First quarter results were consistent with our expectations and we continue to focus our efforts on development leasing, marking rents to market and capitalizing on build-to-suit investment opportunities, while we manage towards lower leverage. After a slow start to the year, we leased approximately 1.6 million square feet after quarter end and we anticipate continued strong second quarter volume with active lease renewal negotiations in process on approximately 1.4 million square feet. In addition, we are responding to RFPs for further negotiation on approximately 1.3 million square feet in our development pipeline. This activity is promising, although there is no guarantee that any leases will be executed.
Renewals continue to take longer to negotiate, partly due to the continued uncertainty in the macroeconomic environment and the disconnect between market rents versus tenants perspectives on their bargaining power. Overall, we believe that, we are in a position of negotiating strength due to our high quality Class A properties that feature modern specs, including high clear height, ample dock doors and auto and trailer parking spots and easy access to highways, airports and ports, all of which make our assets among the most desirable in our target market. As a result of second quarter leasing, we now expect our 2024 same-store NOI will be in the range of 4% to 5%, an increase from our previous range of 3.5% to 4.5%. On another positive note, our average annual escalators increased to 2.7% in the quarter, up from 2.6%.
In addition to these contractual escalators future earnings growth is supported by our estimates of below-market rents through 2029 in our portfolio and the stabilization of our remaining spec development pipeline. Based on our current estimates of below-market rents, as of quarter end these mark-to-market outcomes are estimated to increase initial cash rent by $36 million or $0.12 per share through 2029, while stabilization of the development pipeline is estimated to produce initial cash rent of $20 million or $0.07 per share, as the developments lease up. On the investment side, during the quarter, we committed to an approximately 625,000 square foot build-to-suit project in Greenville-Spartanburg. This investment provides us the opportunity to recycle capital into a newly constructed asset in one of our target markets on accretive terms.
The build-to-suit market is our main area of focus and we will continue to pursue and act on growth opportunities that fit our investment criteria. Moving to the balance sheet. We have good liquidity and have effectively extended our maturities out to 2027. We ended the quarter at 6.1 times net debt to adjusted EBITDA and we are focused on moving towards the low end of our target leverage range of 5 times to 6 times, which will be driven by occupancy gains in our development pipeline and rent growth. With that, I'll turn the call over to Brendan to discuss investment activity in more detail.
An aerial view of a industrial-style building, reflecting the company's success in real estate investments.
Brendan Mullinix: Thanks, Will. We invested approximately $25 million in the first quarter in development, with approximately $35 million left to fund in our remaining spec development projects, excluding any partner promotes and $65 million in a build-to-suit project. We placed our approximately 488,000 square foot, previously leased Phoenix facility into service during the quarter. The facility was leased for seven years with 4% average annual escalations at a starting rent of $9.60 per square foot and an estimated stabilized cash yield of 8.3%, excluding partner promote. We also completed the base building construction of our 250,000 square foot Columbus development project in January. We are currently in lease negotiations on approximately 60,000 square feet of the facility and are responding to tenant interest for the balance of the building.
On the investment side, with build-to-suit projects our primary focus, we are reviewing a number of projects in our target markets, including inquiries involving our Phoenix Land Bank. As Will mentioned, we committed to a build-to-suit project for an international auto parts manufacturer during the quarter on 59 acres in the Greenville-Spartanburg market for initial purchase price of approximately $74 million at an estimated cash capitalization rate of 7.04%. The approximately 625,000 square foot cross dock warehouse distribution facility will be built to modern specs including 40 foot clear height. The facility can also be expanded by 174,000 square foot. We expect the project to complete based in the fourth quarter or first quarter or 2025.
The initial lease term of 12 years with 3% annual escalators will commence at project completion. We expect capital needs for the project and any future build-to-suit projects to be funded with capital recycling proceeds, including our share of the $87 million of potential proceeds, we are estimated to receive in the event the data center user that previously leased the 100 acre Phoenix land parcel exercises their option to purchase the land in the fourth quarter. With that, I'll turn the call over to James to discuss leasing.
James Dudley: Thanks, Brendan. Leasing volume was slow in the first quarter marrying the market dynamics currently taking place across the country. Nationally, the average vacancy rate was up quarter-over-quarter with net absorption significantly down. Rents in our target markets continue to be higher than they were a year ago, but flat quarter-over-quarter. That said, the continuing decrease in new spec construction starts should help with the supply demand imbalance over time. We are also encouraged by the commentary across our markets that activity feels better, as inquiries and tours pick up. In the first quarter, we finalized a three year extension with 4% annual rental bumps for approximately 120,000 square foot at a 396,000 square foot facility in the Atlanta market with a cash rental increase of approximately 28%.
The remainder of the facility is currently leased through 2031. We had two notable leasing outcomes in the Memphis market after quarter end. This included a five year extension with 3% annual bumps at our approximately 928,000 square foot facility at a cash rental increase of approximately 30%. Additionally, we executed a five year renewal with 3.5% bumps at our 700,000 square foot facility for an estimated cash rental increase of approximately 25%. A portion of our remaining 2024 expirations and several of our 2025 lease expirations are included in the additional 1.4 million square feet currently in negotiations. We still expect our remaining 2024 expirations to produce a 20% to 30% cash rental increase, based on our current market conditions.
Our industrial stabilized portfolio was 95.5% leased at quarter end. The change versus the previous quarter is primarily attributable to approximately 2.1 million square feet of non-leased industrial development entering the stabilized portfolio pool. With that, I'll turn the call over to Beth to discuss financial results.
Beth Boulerice: Thanks, James. First quarter revenue was $86 million with property operating expenses of about $15 million of which 93% was attributable to tenant reimbursement. We have produced adjusted company FFO of $0.16 per diluted common share or approximately $49 million in the first quarter. G&A was $9.5 million in the first quarter. We have been focused on operating efficiencies, including shrinking our footprint in New York as we transition overhead costs to our Florida and Dallas offices. During the quarter, we subleased our approximately 20,000 square foot Penn One office space through March 2026. We expect rent expense to decline initially by approximately $600,000 annually and by roughly $1 million annually after March 2026.
We now anticipate 2024 G&A will be within a range of $36.5 million to $38.5 million. Our same-store industrial portfolio was 99.2% leased at quarter end and same-store industrial NOI increased 6.5% in the first quarter when compared to the same period in 2023. Approximately 98% of our industrial portfolio leases had escalations with an average annual rate of 2.7%. At quarter end, net debt to adjusted EBITDA was 6.1times and our $600 million unsecured revolving credit facility was fully available. We're happy to report that, Moody's removed their negative outlook from our credit rating, changing their outlook back to stable and reaffirming our BAA2 rating. Our consolidated debt outstanding was approximately $1.8 billion at quarter end with a weighted-average interest rate of 3.87% and a weighted average term to maturity of 5.5 years.
Finally, our fixed rate debt percentage was approximately 93% at quarter end. With that, I'll turn the call back over to the operator, who will conduct the question-and-answer portion of this call.
