EDGAR 10-K Filing

Company CIK: 910108
Filing Year: 2024
Filename: 910108_10-K_2024_0001444838-24-000053.json

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ITEM 1. BUSINESS
Item 1. Business
General
We are a Maryland real estate investment trust, qualified as a REIT for federal income tax purposes, focused on investing in single-tenant warehouse/distribution real estate investments. A majority of our properties are subject to net or similar leases, where the tenant bears all or substantially all of the costs, including cost increases, for real estate taxes, utilities, insurance and ordinary repairs. However, certain leases provide that the landlord is responsible for certain operating expenses.
As of December 31, 2023, we had equity ownership interests in approximately 115 consolidated real estate properties, located in 18 states and containing an aggregate of approximately 54.6 million square feet of space, approximately 99.8% of which was leased.
History and Current Corporate Structure
We became a Maryland REIT in December 1997. Prior to that, our predecessor was organized in the state of Delaware in October 1993 upon the rollup of two partnerships focused on investments in diversified net-leased assets. Primarily all of our business is conducted through wholly-owned subsidiaries, but historically we conducted a portion of our business through an operating partnership subsidiary, Lepercq Corporate Income Fund L.P., which we refer to as LCIF.
On December 31, 2023, we merged LCIF with and into us, with us as the surviving entity. As a result of the merger 0.7 million LCIF partnership units not already owned by us were converted on a 1 for 1.126 basis into 0.8 million of our common shares for a total value of $7.8 million.
Since December 31, 2015 through December 31, 2023, we transitioned our portfolio from approximately 16% warehouse/distribution assets to approximately 99.7% warehouse/distribution assets. As of December 31, 2023, our portfolio consisted of 112 warehouse/distribution facilities and three other properties.
Strategy
General. Our business strategy is focused on growing our portfolio with attractive warehouse/distribution properties in target markets while maintaining a strong, flexible balance sheet to allow us to act on opportunities as they arise. We acquire and develop warehouse/distribution properties in markets with strong income and growth characteristics that we believe provide an optimal balance of income and capital appreciation.
We provide capital to merchant builders by providing construction financing and/or a takeout for build-to-suit projects and speculative development properties. We believe our development strategy has the potential to provide us with higher returns than we could obtain by acquiring fully-leased buildings. We also believe our strategy mitigates against certain development risks and overhead costs because we partner with merchant builders, who are generally responsible for typical cost overruns. However, we are constantly exploring ways to be more efficient and earn higher returns.
We believe our current strategy mitigates against unexpected costs and the cyclicality of many asset classes and investment strategies and provides shareholders with a secure dividend. We believe our strategy is more conservative than most industrial REITs. We believe our strategy provides defensive attributes for investors in the industrial sector and better growth potential for investors compared to the net lease sector.
Target Markets. We focus our investment strategy on growing markets where we believe there are advantages to building a geographic concentration.
We target markets that we believe have strong growth prospects for us to build a concentration of assets. Strong growth prospects are generally determined by:
•Expanding transportation and logistics networks;
•Distances to major population centers;
•Population growth;
•Physical and regulatory constraints;
•Labor cost and availability;
•Utility costs;
•Land cost and availability; and
•Re-tenanting opportunities and costs.
We focus our investments in the Sunbelt and Midwest. Our current target markets consist of the following:
We expect to grow in these markets by executing on our development pipeline, including through build-to-suits, and opportunistically acquiring facilities in these markets.
We currently expect to opportunistically dispose of properties outside of our target markets as opportunities and the need for liquidity arise.
Building Type. We target general purpose warehouse/distribution facilities that are versatile, easily leased to alternative users and have other attractive features, including some or all of the following features:
•Clear heights generally ranging from 28 feet for smaller buildings to 40 feet for larger buildings;
•Wide column spacing and speed bays;
•Efficient loading dock ratios;
•Deep truck courts;
•Cross docking for larger facilities; and
•Ample trailer and employee parking.
The average age of our warehouse/distribution properties as of December 31, 2023, was approximately 9.5 years.
Tenants. We believe we have a diversified tenant base and are not dependent upon any one tenant. While we invest primarily in single-tenant facilities, we believe our tenant credit strength mitigates somewhat against binary risk in occupancy. As of December 31, 2023, our largest tenant represented 6.9% of our ABR and 49.9% of our ABR was from tenants with investment grade credit ratings (either tenant, guarantor or parent/ultimate parent). See “Item 2 - Properties-Tenant Diversification.”
Institutional Fund Management. We also provide advisory services and co-invest with high-quality institutional investors in non-consolidated entities. One of these institutional joint ventures, NNN Office JV L.P. (“Office JV”), in which we have a 20% interest, was formed in 2018 upon our disposition of a portfolio of office assets and has seven office properties and a land parcel remaining. Another one of these institutional joint ventures, NNN MFG Cold JV L.P. (“MFG Cold JV”) in which we have a 20%
interest, was formed in 2021 upon our disposition of a portfolio of 22 special purpose industrial properties outside of our core warehouse/distribution strategy.
MFG Cold JV has additional equity commitments of $250 million, of which our proportionate share is $50 million, for the acquisition of special purpose industrial properties outside of our core warehouse/distribution focus. We believe investing in special purpose industrial properties in a joint venture structure allows us to mitigate the risk of investing in these types of industrial assets while earning certain fees related to the operation and growth of the joint venture. MFG Cold JV has not made any acquisitions since its original formation transaction.
Our institutional joint ventures use non-recourse mortgage loans to finance their investments.
Insurance
We maintain comprehensive property, liability and pollution insurance policies with limits and deductibles that we believe are appropriate for our portfolio. Our property insurance policy includes business interruption, windstorm coverage and terrorism coverage, subject to certain exclusions. The premiums for our property, liability and pollution insurance are generally reimbursed by our tenants. We also maintain Directors and Officers, Crime, Fiduciary Liability, Employment Practices Liability, Cyber and Miscellaneous Professional Liability insurance.
Regulation
We are subject to various laws, ordinances and regulations, including:
REIT. We elected to be taxed as a REIT under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended, which we refer to as the Code, commencing with our taxable year ended December 31, 1993. We intend to continue to qualify as a REIT. If we qualify for taxation as a REIT, we generally will not be subject to federal corporate income taxes on our net taxable income that is currently distributed to our common shareholders. We conduct certain taxable activities through our taxable REIT subsidiary, Lexington Realty Advisors, Inc.
Americans with Disabilities Act. Our properties must comply with the Americans with Disabilities Act of 1990, as amended, or the Americans with Disabilities Act, to the extent that such properties are “public accommodations” as defined under the Americans with Disabilities Act. Although we believe that our properties in the aggregate substantially comply with current requirements of the Americans with Disabilities Act, and we have not received any notice for correction, we have not conducted a comprehensive audit or investigation of all of our properties to determine whether we are in compliance.
Environmental Matters. Under various federal, state and local environmental laws, statutes, ordinances, rules and regulations, an owner of real property may be liable for the costs of removal or remediation of certain hazardous or toxic substances at, on, in or under such property as well as certain other potential costs relating to hazardous or toxic substances.
As of December 31, 2023, we are not aware of any environmental conditions or material costs of complying with environmental or other government regulations that would have a material adverse effect on our overall business, financial condition, or results of operations. However, it is possible that we are not aware of, or may become subject to, potential environmental liabilities or material costs of complying with government regulations that could be material. See “Risks Related to Our Business” in Item 1A. “Risk Factors” for further information regarding our risks related to government regulations.
Competition
There are numerous developers, real estate companies, financial institutions, such as banks and insurance companies, and other investors with greater financial or other resources that compete with us in seeking properties for acquisition and tenants who will lease space in these properties.
Operating Segments
We manage our operations on an aggregated, single segment basis for purposes of assessing performance and making operating decisions, and accordingly, have only one reporting and operating segment. While we have target markets, we do not allocate capital by market or operate properties in specific markets independent of our overall portfolio.
Human Capital
While our investment focus is on physical assets, human capital is critical to our success. We believe investing in our team will result in value creation for our shareholders. We strive to maintain a supportive work atmosphere that values community and
promotes professional and personal growth, work autonomy and health and wellness. We rely on our employees and the employees of our contractors and vendors to operate our business and implement our strategy.
Employees. As of December 31, 2023, we had 64 full-time employees. None of our employees are covered by a collective bargaining agreement. Each of our employees work in one or more of the following departments: Investments, Asset Management, Accounting, Tax, Corporate, Legal and Information Technology.
On at least an annual basis, our Chief Executive Officer submits a management succession plan that provides for the ordinary course and emergency succession for our Chief Executive Officer and other key members of management, which is reviewed by the Nominating and ESG Committee of our Board of Trustees and, ultimately, our Board of Trustees.
Attraction & Retention of Talent. We compete for talent by providing competitive compensation and benefits and by working to maintain a culture that is supportive and collaborative and that provides opportunities for both personal and professional growth. Some of our benefit highlights are:
•The compensation for employees above a certain level generally includes long-term equity awards, giving them ownership in us in an effort to retain their services.
•Medical insurance with a portion of the premiums paid by us. The minimum employee portion of premium to participate in one of the medical insurance plans for a single employee making less than $100,000 in base salary per year is $1 per month.
•Dental and vision benefits at no cost to all of our employees.
•A minimum of 14 paid time off, or PTO, days for first year employees, which increases to 19 PTO days in the third and fourth year of employment and 24 PTO days in the fifth year of employment.
•A 401(k) plan where all employees can defer a portion of their compensation and receive matching and profit sharing contributions from the Company.
•Flexible working arrangements where employees are able to work from home on specified days per workweek.
•Professional development policy providing full reimbursement for career-relevant trainings and classes and professional organizations and other resources.
•Employee stock purchase plan where all employees can defer a portion of their salary to purchase Company stock at a discount.
•Semi-annual performance reviews and an online platform to provide real-time feedback.
•Anniversary bonuses for employees who have reached certain tenure amounts.
Due to the small size of our employee base, our turnover is generally low. In 2023, three employees voluntarily or involuntarily separated service from us and we hired one employee for a net change of two employees.
Demographics. We believe there are many benefits to diversity in our employee base. Of our 64 full-time employees at December 31, 2023, 57.8% were female and 46.9% were non-white. Of our eight executive employees at December 31, 2023, 25.0% were female and 12.5% were non-white.
We maintain a diversity, equity and inclusion policy that acknowledges our commitment to cultivating a culture of diversity, equity and inclusion and related initiatives and provides a process for employees to report violations of the policy.
Training and Development. In addition to our professional development policy, we maintain a variety of training programs for our employees, including annual trainings for sustainability, accounting, cybersecurity, human rights, harassment (for managers and non-managers) and anti-corruption/bribery. During 2023, none of our employees violated our anti-corruption/bribery policies and we did not pay any fines for violating anti-corruption/bribery laws or regulations.
Employee Engagement. We regularly engage our employees through the following methods:
•During 2023, we conducted a mid-year performance review for our non-executive employees and a year-end performance review for all of our employees. The year-end performance review consisted of a 180-degree review where non-executive employees reviewed their immediate supervisor. We believe this 180-degree review provides an objective measurement of our employees' performance. The performance of each of our executive-titled employees is reviewed by our Chief Executive Officer, which is presented to, and discussed by, the Compensation Committee of our Board of Trustees.
•During 2023, we engaged our employees with several surveys, including an employee satisfaction survey. The participation rate for the employee satisfaction survey was 88% and we achieved an 86% overall satisfaction rate.
Human Rights. We believe respect for human rights is essential. We maintain an enterprise level human rights policy that acknowledges our efforts to promote human rights in accordance with the UN Guiding Principles on Business and Human Rights and the UN Universal Declaration of Human Rights. We respect freedom of association in our employment practices.
Vendors and Contractors. We outsource the following material functions:
•Information Technology. We engaged a third-party provider of virtual desktop and digital workspaces for managed IT services and a national accounting firm through its digital product line, for virtual chief technology officer services, including as our chief information security officer, or CISO.
•Internal Audit. We engaged a “big-four” accounting firm to assist with our internal audit function.
•Property Management. We primarily engage CBRE, Cushman & Wakefield and Jones Lang LaSalle for the management of our properties where we have operating responsibilities. We also use the management affiliates of the developer/sellers of properties we acquire and develop for the management of such properties if we have operating responsibilities and we believe it is important for such management affiliates to continue to manage the property.
•ESG. We engaged RE Tech Advisors to assist us with our environmental, social and governance, or ESG, initiatives. The 2022 energy, GHG emissions, water and waste data in our corporate responsibility report was independently verified by Lucideon CICS, a private limited company providing in verification and certification services.
We maintain a supplier code of conduct for our vendors and contractors.
Corporate Responsibility
Due to the properties in our portfolio primarily being subject to net leases where tenants are responsible for maintaining the buildings and are in control of their energy usage and environmental sustainability practices, our ability to implement ESG+R initiatives throughout our portfolio may be limited.
We understand the importance of aligning with our stakeholders on environmental, social, governance, and resilience, or ESG+R, matters. Our goal is to continue building a sustainable ESG+R platform that enhances both our company and shareholder value. We are committed to implementing sustainability measures across our organization, from the way in which we assess investment decisions to the business practices we promote at both the corporate and property levels. We believe our publicly disclosed ESG+R objectives will continue to evolve as our platform grows and contribute to our ongoing long-term success on behalf of our stakeholders, including our shareholders, employees, tenants, suppliers, creditors, and local communities.
We find that communicating and engaging with our stakeholders to learn their needs enhances our knowledge and enables us to take actions that we believe may increase the value of our assets. We understand that each stakeholder has a specific point-of-view and unique needs. We seek to continuously identify avenues to engage with our stakeholders to better understand those needs, and we maintain a stakeholder engagement policy. During 2023, we held various meetings with our shareholders and tenants. We held townhall meetings with our employees, we completed questionnaires from shareholders and industry groups, and we engaged our tenants and employees with satisfaction surveys and newsletters.
The Nominating and ESG Committee of our Board of Trustees oversees our ESG+R strategy and initiatives.
Environmental, Sustainability and Climate Change
Developing strategies that reduce our environmental impact and operational costs is a critical component of our ESG+R program. When feasible, we implement base building upgrades and provide tenants with improvement allowance funds to complete sustainability efforts.
Actions:
•Track and monitor all landlord-paid utilities, and track tenant utility data wherever possible.
•Strategically implement green building certifications to highlight sustainability initiatives and pursue ENERGY STAR certification for eligible properties annually.
•Annually review and evaluate opportunities to improve efficiency, reduce operating costs, and reduce our properties' environmental footprint.
• Evaluate opportunities to increase renewable energy usage across the portfolio.
Performance:
•Benchmarked landlord paid energy, water, waste, and recycling across the portfolio and working to expand tenant-paid utility data coverage.
•Completed a Greenhouse Gas (GHG) Inventory of our 2022 Scope 1, 2, and 3 GHG Emissions.
•Obtained green building certifications for eight properties and submitted ENERGY STAR applications for six properties in our portfolio during 2023.
•Circulated and maintained sustainability-focused resources for tenants and property managers, including a Tenant Fit-Out Guide and an Industrial Tenant Sustainability Guide.
•Evaluated sustainability and efficiency initiatives across the portfolio in an effort to reduce energy consumption and drive down greenhouse gas emissions.
•Included ESG+R in metrics for executive cash incentive awards.
Social
We believe that actively engaging with stakeholders is critical to our business and ESG+R efforts, providing valuable insight to inform strategy, attract and retain top talent, and strengthen tenant relationships.
Actions:
•Routinely engage with our tenants to understand leasing and operational needs at our assets and provide tools and resources to promote sustainable tenant operations.
•Collaborate with tenants and property managers on health and well-being focused initiatives.
•Assess our tenant and employee satisfaction and feedback through annual surveys.
•Circulate ESG+R focused newsletter to tenants and maintain a tenant portal with ESG+R resources.
•Provide our employees with periodic trainings, industry updates and access to tools and resources related to ESG+R.
•Provide our employees with health and well-being resources focused on physical, emotional and financial health.
•Track and highlight the diversity and inclusion metrics of our employees, board and executive management team.
•Support and engage with local communities through philanthropic and volunteer events, focusing on food insecurity and diversity, equity and inclusion initiatives.
•Incorporate sustainability clauses into tenant leases, allowing collaboration on our ESG+R initiatives.
Performance:
•Conducted a tenant feedback survey through Kingsley Associates and achieved a satisfaction score in excess of the Kingsley Associates average.
•Engaged with our employees through regular surveys, including an employee satisfaction survey.
•Organized employee volunteer opportunities at non-profit organizations on Company time and held clothing and food drives.
•Maintained a paid-time-off policy for employees to volunteer in their local communities.
•Organized step and other health-related challenges for our employees.
•Invited our employees to donate to non-profit organizations within the local communities of our office locations.
•Provided an employee assistance program with 24/7 unlimited access to referrals and resources for all work-life needs, including access to face-to-face and telephonic counseling sessions, legal and financial referrals and consultations.
•Awarded as a 2023 Best Company to Work for in New York.
•Maintained a women's mentorship program, where female employees are paired with female mentors for career related advice and support.
•Named 2023 Green Lease Leader with Gold recognition by the Institution for Market Transformation and the U.S. Department of Energy’s Better Buildings Alliance.
Governance
Transparency to our stakeholders is essential. We pride ourselves on providing our stakeholders with regular reports and detailed disclosures on our operational and financial health and ESG+R efforts.
Actions:
•Strive to implement best governance practices, mindful of the concerns of our shareholders.
•Increase our ESG+R transparency and disclosure by providing regular ESG updates to shareholders and other stakeholders and aligning with appropriate reporting frameworks and industry groups, including GRESB, SASB, GRI and TCFD.
•Monitor compliance with applicable benchmarking and disclosure legislation, including utility data reporting, audit and retro-commissioning requirements, and greenhouse gas emission laws.
•Ensure employees operate in accordance with the highest ethical standards and maintain the policies outlined in our Code of Business Conduct and Ethics.
Performance:
•Updated and disclosed our Code of Business Conduct and Ethics, which includes a whistleblower policy, and provided annual training.
•Performed enterprise risk assessments and management succession planning.
•Participated in the GRESB Real Estate Assessment:
◦Placed 3rd in the U.S. Industrial Distribution/Warehouse listed peer group;
◦Achieved a Real Estate Benchmark score of 74, a five-point increase compared to 2022; and,
◦Received Public Disclosure Score of 96 (A), above the comparison group and global average, and placed first in the U.S. Industrial Peer Group.
•Published our 2022 Corporate Responsibility Report, aligned with GRI, SASB, SDGs and TCFD.
•Maintained a Stakeholder Engagement Policy to disclose our process when working with our key stakeholders, including investors, property management teams, and tenants.
•Continued to support the UN Women's Empowerment Principles and the CEO Action for Diversity & Inclusion.
•Conducted annual ESG+R training for asset managers, lease administrators and property managers.
Resilience
We believe that our resilience to climate change-related physical and transition risks is critical to our long-term success.
Actions:
•Align our resilience program with the TCFD framework.
•Evaluate physical and transition climate-related risks as part of our acquisition due diligence process.
•Utilize climate analytics metrics to (1) identify physical risk exposure across the portfolio, (2) identify high risk assets and (3) implement mitigation measures and emergency preparedness plans.
•Assess transition risks and opportunities arising from the shift to a low-carbon economy, including market, reputation, policy, legal, and technology.
Performance:
•Engaged a third-party consultant to conduct ESG+R assessments on all new acquisitions.
•Continued to be a supporter of the TCFD reporting framework.
•Engaged a climate analytics firm to evaluate physical risk due to climate change across our portfolio.
Corporate Information
Principal Executive Offices. Our principal executive offices are located at One Penn Plaza, Suite 4015, New York, New York 10119-4015; our telephone number is (212) 692-7200.
Web Site. Our Internet address is www.lxp.com. We make available, free of charge, on or through the Investors section of our web site or by contacting our Investor Relations Department, our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act, as well as proxy statements, as soon as reasonably practicable after we electronically file such material with, or furnish it to, the Securities and Exchange Commission, or SEC. Also posted on our web site, and available in print upon request of any shareholder to our Investor Relations Department, are our declaration of trust and by-laws, charters for the Audit and Cyber Risk Committee, Compensation Committee and Nominating and ESG Committee of our Board of Trustees, our Corporate Governance Guidelines, and our Code of Business Conduct and Ethics governing our trustees, officers and employees (which contains our whistleblower procedures). Within the time period required by the SEC and the NYSE, we will post on our web site any amendment to the Code of Business Conduct and Ethics and any waiver applicable to any of our trustees or executive officers or other people performing similar functions, and that relate to any matter enumerated in Item 406(b) of Regulation S-K. In addition, our web site includes information concerning purchases and sales of our equity securities by our executive officers and trustees as well as disclosure relating to certain non-GAAP financial measures (as defined in the SEC's Regulation G) that we may make public orally, telephonically, by webcast, by broadcast or by similar means from time to time. The SEC maintains an internet site that contains reports, proxy and information statements and other information regarding LXP at http://www.sec.gov. Information contained on our web site or the web site of any other person is not incorporated by reference into this Annual Report or any of our other filings with or documents furnished to the SEC.
Our Investor Relations Department can be contacted at LXP Industrial Trust, One Penn Plaza, Suite 4015, New York, New York 10119-4015, Attn: Investor Relations, by telephone: (212) 692-7200, or by e-mail: ir@lxp.com.
NYSE CEO Certification. Our Chief Executive Officer made an unqualified certification to the NYSE with respect to our compliance with the NYSE corporate governance listing standards in 2023.

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ITEM 1A. RISK FACTORS
Item 1A. Risk Factors
In addition to the other information in our Annual Report on Form 10-K, you should consider the risks described below that we believe may be material to investors in evaluating the Company. This section contains forward-looking statements, and in considering these statements, you should refer to the qualifications and limitations on our forward-looking statements that are described on page four above.
Risks Related to Our Business
We are subject to risks related to defaults under, or termination or expiration of, our leases.
We focus our investment activities on industrial real estate properties that are generally net leased to single tenants, and certain of our tenants and/or their guarantors constitute a significant percentage of our rental revenues. Therefore, the financial failure of, or other default by, a single tenant under its lease is likely to cause a significant or complete reduction in the operating cash flow generated by the property leased to that tenant and might decrease the value of that property and result in a non-cash impairment charge. If the tenant represents a significant portion of our rental revenues, the impact on our financial position may be material. Further, in any such event, we will be responsible for 100% of the operating costs following a vacancy at a single-tenant building.
Under current bankruptcy law, a tenant can generally assume or reject a lease within a certain number of days of filing its bankruptcy petition. If a tenant rejects the lease, a landlord's damages, subject to availability of funds from the bankruptcy estate, are generally limited to the greater of (1) one year's rent and (2) the rent for 15% of the remaining term of the lease, not to exceed three years.
Our property owner subsidiaries may not be able to retain tenants in any of our properties upon the expiration of leases. Upon the expiration or other termination of current leases, our property owner subsidiaries may not be able to re-let all or a portion of the vacancy, or the terms of re-letting (including the cost of concessions to tenants and leasing commissions) may be less favorable than current lease terms or market rates. If one of our property owner subsidiaries is unable to promptly re-let all or a substantial portion of the vacancy, or if the rental rates a property owner subsidiary receives upon re-letting are significantly lower than current rates, our earnings and ability to satisfy our debt service obligations and to make expected distributions to our shareholders may be adversely affected due to the resulting reduction in rent receipts and increase in property operating costs.
Certain of our leases may permit tenants to terminate the leases to which they are a party.
Certain of our leases contain tenant termination options or economic discontinuance options that permit the tenants to terminate their leases. While these options generally require a payment by the tenants, in most cases, the payments will be less than the total remaining expected rental revenue. The termination of a lease by a tenant may impair the value of the property. In addition, we will be responsible for 100% of the operating costs following the termination by any such tenant and subsequent vacating of the property, and we will incur re-leasing costs.
Our ability to fully control the maintenance of our net-leased properties may be limited.
The tenants of our net-leased properties are responsible for maintenance and other day-to-day management of the properties or their premises. If a property is not adequately maintained in accordance with the terms of the applicable lease, we may incur expenses for deferred maintenance or other liabilities once the property is no longer leased. We generally visit our properties on an annual basis, but these visits are not comprehensive inspections and deferred maintenance items may go unnoticed. While our leases generally provide for recourse against the tenant in these instances, a bankrupt or financially-troubled tenant may be more likely to defer maintenance, and it may be more difficult to enforce remedies against such a tenant.
You should not rely on the credit ratings of our tenants.
Some of our tenants, guarantors and/or their parent or sponsor entities are rated by certain rating agencies. In certain instances, we may disclose the credit ratings of our tenants or their parent or sponsor entities even though those parent or sponsor entities are not liable for the obligations of the tenant or guarantor under the lease. Any such credit ratings are subject to ongoing evaluation by these credit rating agencies and we cannot assure you that any such ratings will not be changed or withdrawn by these rating agencies in the future if, in their judgment, circumstances warrant. If these rating agencies assign a lower-than-expected rating or reduce or withdraw, or indicate that they may reduce or withdraw, the credit rating of a tenant, guarantor or its parent entity, the value of our investment in any properties leased by such tenant could significantly decline.
Our assets may be subject to impairment charges.
We periodically evaluate our real estate investments and other assets for impairment indicators. The judgment regarding the existence of impairment indicators is based on GAAP, which includes a variety of factors such as market conditions, the status of significant leases, the financial condition of major tenants and other factors that could affect the cash flow or value of an investment. Based on this evaluation, we may, from time to time, take non-cash impairment charges. These impairments could have a material adverse effect on our financial condition and results of operations. If we take an impairment charge on a property subject to a non-recourse secured mortgage and reduce the book value of such property below the balance of the mortgage on our balance sheet, upon foreclosure or other disposition, we may be required to recognize a gain on debt satisfaction.
Our real estate development activities are subject to additional risks.
Development activities generally require various government and other approvals, which we may not receive. We rely on third-party construction managers and/or engineers to monitor certain construction activities. If we engage or partner with a developer, we rely on the developer to monitor construction activities and our interests may not be aligned. In addition, development activities, including speculative development and redevelopment and renovation of vacant properties, are subject to risks including, but not limited to:
•unsuccessful development opportunities could cause us to incur direct expenses;
•construction costs of a project may exceed original estimates, possibly making the project less profitable than originally estimated or unprofitable;
•time required to complete the construction of a project or to lease up the completed project may be greater than originally anticipated, thereby adversely affecting our cash flow and liquidity;
•legal action to compel performance of contractors, developers or partners may cause delays and our costs may not be reimbursed;
•we may not be able to find tenants to lease the space built on a speculative basis or in a redeveloped or renovated building, which will impact our cash flow and ability to finance or sell such properties;
•there may be gaps in warranty obligations of our developers and contractors and the obligations to a tenant;
•occupancy rates and rents of a completed project may not be sufficient to make the project profitable; and
•favorable financing sources to fund development activities may not be available.
In addition, our development activities are subject to risks related to supply-chain disruptions and inflation, which increase costs and may delay completion.
A tenant’s bankruptcy proceeding may result in the re-characterization of related sale-leaseback transactions or in the restructuring of the tenant's payment obligations to us, either of which could adversely affect our financial condition.
We have entered and may continue to enter into sale-leaseback transactions, whereby we purchase a property and then lease the same property back to the person from whom we purchased it or a related person. In the event of the bankruptcy of a tenant, a transaction structured as a sale-leaseback may be re-characterized as either a financing or a joint venture. As a result of the foregoing, the re-characterization of a sale-leaseback transaction could adversely affect our financial condition, cash flow and the amount available for distributions to our shareholders.
If the sale-leaseback were re-characterized as a financing, we might not be considered the owner of the property, and as a result, would have the status of a creditor in relation to the tenant. In that event, we would no longer have the right to sell or encumber our ownership interest in the property. Instead, we would have a claim against the tenant for the amounts owed under the lease, with the claim arguably secured by the property. The tenant/debtor might have the ability to propose a plan restructuring the term, interest rate and amortization schedule of the claims outstanding balance. If confirmed by the bankruptcy court, we could be bound by the new terms and prevented from foreclosing our lien on the property. If the sale-leaseback were re-characterized as a joint venture, our tenant and we could be treated as co-venturers with regard to the property. As a result, we could be held liable, under some circumstances, for debts incurred by the tenant relating to the property.
A significant portion of our leases are long-term and do not have fair market rental rate adjustments, which could negatively impact our income and reduce the amount of funds available to make distributions to shareholders.
A significant portion of our rental income comes from long-term net leases, which generally provide the tenant greater discretion in using the leased property than ordinary property leases, such as the right to freely sublease the property, to make alterations in the leased premises and to terminate the lease prior to its expiration under specified circumstances. Furthermore, net leases typically have longer lease terms and, thus, there is an increased risk that contractual rental increases in future years will fail to result in fair market rental rates during those years. If we do not accurately judge the potential for increases in market rental rates when negotiating these long-term leases or if we are unable to obtain any increases in rental rates over the terms of our leases, significant increases in future property operating costs, to the extent not covered under the net leases, could result in us receiving less than fair value from these leases. As a result, our income and distributions to our shareholders could be lower than they would otherwise be if we did not engage in long-term net leases.
In addition, increases in interest rates may also negatively impact the value of our properties that are subject to long-term leases. While a significant number of our net leases provide for annual escalations in the rental rate, the increase in interest rates may outpace the annual escalations.
Interests in loans receivable are subject to delinquency, foreclosure and loss.
While loan receivables are not a primary focus, we make loans to purchasers of our properties and developers. Our interests in loans receivable are generally non-recourse and secured by real estate properties owned by borrowers that were unable to obtain similar financing from a commercial bank. These loans are subject to many risks including delinquency. The ability of a borrower to repay a loan secured by a real estate property is typically and primarily dependent upon the successful operation of such property rather than upon the existence of independent income or assets of the borrower. If a borrower were to default on a loan, it is possible that we would not recover the full value of the loan as the collateral may be non-performing or impaired.
Our inability to carry out our growth strategy could adversely affect our financial condition and results of operations.
Our plan to grow through the acquisition and development of new properties could be adversely affected by trends in the real estate and financing businesses. For example, our ability to grow will be influenced by the relationship between our expected returns on available acquisition and development opportunities in our target markets and our cost of available capital. Our ability to implement our strategy may also be impeded because we may have difficulty finding opportunities that meet our investment criteria, in addition, our acquisitions and developments may fail to perform in accordance with expectations, including operating and leasing expectations. If we are unable to carry out our growth strategy, our financial condition and results of operations could be adversely affected.
Some of our acquisitions and developments may be financed using short-term financing, such as our line of credit, with the expectation of providing permanent financing in the future, such as through an equity or debt offering. If permanent debt or equity financing is not available on attractive terms to refinance this short-term financing, further acquisitions and developments may be curtailed, or cash available to satisfy our debt service obligations and distributions to shareholders may be adversely affected.
Our investment and disposition activity may lead to dilution.
Our strategy is to increase our investment in general purpose, well located warehouse/distribution assets and reduce our direct exposure to all other asset types. We believe this strategy will lessen capital expenditures over time and mitigate revenue reductions on renewals and re-tenanting. To implement this strategy, we have been selling non-industrial assets and recapitalizing special purpose industrial assets, which generally have higher capitalization rates, and buying warehouse and distribution properties, which generally have lower capitalization rates. We also may sell industrial properties outside of our target markets at capitalization rates higher than we expect to reinvest in our target markets. This strategy adversely impacts returns and cash flows in the short-term. There can be no assurance that the implementation of our strategy will lead to improved results or that we will be able to execute our strategy as contemplated or on terms acceptable to us.
Investment activities may not produce expected results and may be affected by outside factors.
The demand for industrial space in the United States is generally related to the level of economic output and consumer demand. Accordingly, reduced economic output and/or consumer demand may lead to lower occupancy rates for our properties. The concentration of our investments, among other factors, in industrial assets may expose us to the risk of economic downturns specific to industrial assets to a greater extent than if our investments were diversified.
Investment in commercial properties entail certain risks, such as (1) underwriting assumptions, including occupancy, rental rates and expenses, may differ from estimates, (2) the properties may become subject to environmental liabilities that we were unaware of at the time we acquired the property despite any environmental testing, (3) we may have difficulty obtaining financing on acceptable terms or paying the operating expenses and debt service associated with acquired properties prior to sufficient occupancy and (4) projected exit strategies may not come to fruition due to a variety of factors such as market conditions and/or tenant credit conditions at the time of dispositions.
We may not be successful in identifying suitable real estate properties or other assets that meet our investment criteria. We may also fail to complete investments on satisfactory terms. Failure to identify or complete investments could slow our growth, which could, in turn, have a material adverse effect on our financial condition and results of operations.
Properties where we have operating responsibilities and multi-tenant properties expose us to additional risks.
Properties where we have operating responsibilities involve risks not typically encountered in real estate properties which are fully operated by a single tenant. The ownership of properties which are not fully operated by a single tenant expose us to the risk of potential “CAM slippage,” which may occur when the actual cost of taxes, insurance and maintenance at the property exceeds the operating expenses paid by tenants and/or the amounts budgeted. Depending on the tenant’s leverage in the lease negotiation, the tenant may be successful in negotiating for caps on certain operating expenses and we are responsible for any amounts in excess of any cap.
Multi-tenant properties are also subject to the risk that a sufficient number of suitable tenants may not be found to enable the property to operate profitably and provide a return to us. Moreover, tenant turnover and fluctuation in occupancy rates, could affect our operating results. This risk may be compounded by the failure of existing tenants to satisfy their obligations due to various factors. These risks, in turn, could cause a material adverse impact to our results of operations and business.
Uninsured losses or a loss in excess of insured limits could adversely affect our financial condition.
We carry comprehensive liability, property, fire, extended coverage and rent loss insurance on certain of the properties in which we have an interest, with policy specifications and insured limits that we believe are customary for similar properties. However, with respect to those properties where the leases do not provide for abatement of rent under any circumstances, we generally do not maintain rent loss insurance. In addition, certain of our leases require the tenant to maintain all insurance on the property, and the failure of the tenant to maintain the proper insurance could adversely impact our investment in a property in the event of a loss. Furthermore, there are certain types of losses, such as losses resulting from wars, terrorism or certain acts of God, that generally are not insured because they are either uninsurable or not economically insurable. Should an uninsured loss or a loss in excess of insured limits occur, we could lose capital invested in a property as well as the anticipated future revenues from a property, while remaining obligated for any mortgage indebtedness or other financial obligations related to the property. Any loss of these types could adversely affect our financial condition and results of operations.
In addition, the cost of property and related coverage insurance has increased significantly in recent years due to the rise in construction costs and property values and the decrease in capacity in the insurance market.
Cybersecurity incidents may adversely affect our business.
Cybersecurity incidents may result in disrupted operations, including as a result of the loss of access to our information systems, misstated or unreliable financial data, liability for stolen assets or information, increased cybersecurity protection and insurance costs, litigation and damage to our tenant, investor and/or vendor relationships. As our reliance on technology has increased, so have the risks posed to our information systems, both internal and those we have outsourced. Although we have implemented processes, procedures and internal controls to mitigate these risks, we have in the past and may in the future be subject to cybersecurity incidents.
We are also subject to third-party cybersecurity incident risks. As a landlord, we are also susceptible to cyber attacks on our tenants and their payment systems. In addition, we outsource the maintenance of our information technology systems to third party vendors.
As a smaller company, we use third-party vendors to maintain our network and information technology requirements. While we carefully select these third-party vendors, we cannot control their actions. Any problems caused by these third parties, including those resulting from breakdowns or other disruptions in communication services provided by a vendor, failure of a vendor to handle current or higher volumes, cyber attacks and security breaches at a vendor could adversely affect our operations.
Further information relating to cybersecurity risk management is discussed in Item 1C. “Cybersecurity” in this Annual Report.
Competition may adversely affect our ability to purchase properties.
There are numerous other companies and individuals with greater financial and other resources and lower costs of capital than we have that compete with us in seeking investments and tenants. This competition may result in a higher cost for properties and lower returns and impact our ability to grow.
We may have limited control over our joint venture investments.
Our joint venture investments involve risks not otherwise present for investments made solely by us, including the possibility that our partner might, at any time, become bankrupt, have different interests or goals than we do, or take action contrary to our expectations, its previous instructions or our instructions, requests, policies or objectives, including our policy with respect to maintaining our qualification as a REIT. Other risks of joint venture investments include impasses on decisions, such as a sale, because neither we nor our partner may have full control over the joint venture. Also, there is no limitation under our organizational documents as to the amount of funds that may be invested in joint ventures.
Our ability to change our portfolio is limited because real estate investments are illiquid.
Investments in real estate are relatively illiquid and, therefore, our ability to change our portfolio promptly in response to changed conditions is limited. Our Board of Trustees may establish investment criteria or limitations as it deems appropriate, but currently does not limit the number or type of properties in which we may seek to invest or on the concentration of investments in any one geographic region.
Our Board of Trustees may change our investment policy without shareholders' approval.
Subject to our fundamental investment policy to maintain our qualification as a REIT, our Board of Trustees will determine our investment and financing policies, growth strategy and our debt, capitalization, distribution, acquisition, disposition and operating policies.
Our Board of Trustees may revise or amend these strategies and policies at any time without a vote by shareholders. Changes made by our Board of Trustees may not serve the interests of debt or equity security holders and could adversely affect our financial condition or results of operations, including our ability to satisfy our debt service obligations, distribute cash to shareholders and qualify as a REIT. Accordingly, shareholders' control over changes in our strategies and policies is limited to the election of trustees.
Industry and Economic Risks
Public health emergencies could adversely impact or cause disruption to our business, financial condition, results of operations and cash flows.
In recent years, public health emergencies, including COVID-19, have caused significant and widespread damage to the economy and the financial markets.
The COVID-19 pandemic contributed to labor shortages, supply chain issues, including longer lead times for construction materials and increased construction costs, capital markets disruptions and inflationary conditions. Future public health emergencies, and the steps governments take to control them, may negatively affect (i) the operation of our properties, (ii) the effectiveness of our strategic decision making, (iii) the operation of our key information systems, (iv) our ability to make timely filings with the SEC and (v) our ability to maintain an effective control environment.
Disruptions in the financial markets and uncertain economic conditions could adversely affect our ability to obtain financing on reasonable terms, the value of our real estate investments, and have other adverse effects on us.
Concerns over possible economic recession, high interest rates, bank failures, the upcoming U.S. elections, geopolitical issues, including military conflicts, trade wars, labor shortages, and inflation may contribute to increased financial market volatility.
The United States financial markets have periodically experienced significant dislocations and liquidity disruptions due to a variety of factors. Uncertainty in the financial markets may negatively impact our ability to access additional financing on reasonable terms, which may negatively affect our ability to execute our growth strategy. In addition, these factors may make it more difficult for us to sell properties or may adversely affect the price we receive for properties that we do sell, as prospective buyers may experience increased costs of capital or difficulties in obtaining capital. Volatile financial markets may also have an adverse effect on our tenants.
Natural disasters could adversely impact our results.
We invest in properties on a nationwide basis. Natural disasters, including earthquakes, storms, tornados, floods and hurricanes, could impact our properties in these and other areas in which we operate. Incurring losses, costs or business interruptions related to natural disasters may adversely affect our operating and financial results.
We are exposed to the potential direct and indirect impacts of climate change.
We are exposed to physical risks from changes in climate. Our properties, especially the properties near seaports, may be exposed to rare catastrophic weather events, such as severe storms, drought, earthquakes, floods, wildfires or other extreme weather events. If the frequency of extreme weather events increases, our exposure to these events could increase and could impact our tenants' operations and their ability to pay rent. We carry comprehensive insurance coverage to mitigate our casualty risk, in amounts and of a kind that we believe are appropriate for the markets where each of our properties and their business operations are located given climate change risk.
We may be adversely impacted in the future by potential impacts to the supply chain or stricter energy efficiency standards or greenhouse gas regulations for the commercial building sectors. Compliance with new laws or regulations relating to climate change, including compliance with “green” building codes, may require us to make improvements to our existing properties or result in increased operating costs that we may not be able to effectively pass on to our tenants. Any such laws or regulations could also impose substantial costs on our tenants, thereby impacting the financial condition of our tenants and their ability to meet their lease obligations and to lease or re-lease our properties. We cannot give any assurance that other such conditions do not exist or may not arise in the future. The potential impacts of climate change on our real estate properties could adversely affect our ability to lease, develop or sell such properties or to borrow using such properties as collateral.
Risks Related to our Indebtedness
We have a substantial amount of indebtedness.
We have a substantial amount of debt. Our substantial indebtedness could adversely affect our financial condition and our ability to fulfill our obligations under the documents governing our unsecured indebtedness and otherwise adversely impact our business and growth prospects.
We have incurred, and may continue to incur, direct and indirect indebtedness in furtherance of our activities. Neither our declaration of trust nor any policy statement formerly adopted by our Board of Trustees limits the total amount of indebtedness that we may incur, and accordingly, we could become even more highly leveraged. As of December 31, 2023, our total consolidated indebtedness was approximately $1.8 billion and we had approximately $600.0 million available for borrowing under our principal credit agreement, subject to covenant compliance.
Our substantial indebtedness could adversely affect our financial condition and results of operations and have important consequences to us and our debt and equity security holders. For example, it could:
•make it more difficult for us to satisfy our indebtedness and debt service obligations and adversely affect our ability to pay distributions;
•increase our vulnerability to adverse economic and industry conditions;
•require us to dedicate a substantial portion of our cash flow from operations to the payment of interest on and principal of our indebtedness, thereby reducing the availability of cash to fund working capital, capital expenditures and other general corporate purposes;
•limit our ability to borrow money or sell stock to fund our development projects, working capital, capital expenditures, general corporate purposes or acquisitions;
•restrict us from making strategic acquisitions or exploiting business opportunities;
•place us at a disadvantage compared to competitors that have less debt; and
•limit our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate.
In addition, the agreements that govern our current indebtedness contain, and the agreements that may govern any future indebtedness that we may incur may contain, financial and other restrictive covenants, which may limit our ability to engage in activities that may be in our long-term best interests. Our failure to comply with those covenants could result in an event of default that, if not cured or waived, could result in the acceleration of our debt.
Furthermore, our growth strategy is dependent on speculative development of properties. Development activities do not produce current income that can be used to pay debt service obligations.
Market interest rates could have an adverse effect on our borrowing costs, profitability and the value of our fixed-rate debt securities.
We have exposure to market risks relating to increases in interest rates due to our variable-rate debt. Interest rates rose significantly in 2022 and 2023. An increase in interest rates may increase our costs of borrowing on existing variable-rate indebtedness, leading to a reduction in our earnings. As of December 31, 2023, we had $129.1 million of trust preferred securities that mature in April 2037 that are SOFR indexed. In addition, we have a $300.0 million unsecured term loan which matures January 2027 that is Term SOFR indexed and is subject to interest rate swap agreements through January 2025. Also, our unsecured revolving credit facility is subject to a variable interest rate. The level of our variable-rate indebtedness, along with the interest rate associated with such variable-rate indebtedness, may change in the future and materially affect our interest costs and earnings. In addition, our interest costs on our fixed-rate indebtedness may increase if we are required to refinance our fixed-rate indebtedness upon maturity at higher interest rates. Higher interest rates could also adversely affect the ability of prospective buyers to obtain financing for properties we intend to sell.
We have engaged and may engage in hedging transactions that may limit gains or result in losses.
We have used derivatives to hedge certain of our variable-rate liabilities. As of December 31, 2023, we had aggregate interest rate swap agreements on $300.0 million of borrowings until January 31, 2025. The counterparties of these arrangements are major financial institutions; however, we are exposed to credit risk in the event of non-performance or default by the counterparties. Further, additional risks, including losses on a hedge position, may reduce the return on our investments. Such losses may exceed the amount invested in such instruments. We may also have to pay certain costs, such as transaction fees or breakage costs, related to hedging transactions.
Covenants in certain of the agreements governing our debt could adversely affect our financial condition, investment activities and/or operating activities.
Our unsecured revolving credit facility, unsecured term loan and indentures governing our senior notes contain certain cross-default and cross-acceleration provisions as well as customary restrictions, requirements and other limitations on our ability to incur indebtedness and consummate mergers, consolidations or sales of all or substantially all of our assets. Our ability to borrow under our unsecured revolving credit facility is also subject to compliance with certain other covenants. In addition, failure to comply with our covenants could cause a default under the applicable debt instrument and we may then be required to repay such debt with capital from other sources. Under those circumstances, other sources of capital may not be available to us or be available only on unattractive terms. Additionally, our ability to satisfy current or prospective lenders' insurance requirements may be adversely affected if lenders generally insist upon greater insurance coverage than is available to us in the marketplace or on commercially reasonable terms.
We rely on debt financing, including borrowings under our unsecured revolving credit facility, unsecured term loan, debt securities, and debt secured by individual properties, for working capital, including to finance our investment activities. If we are unable to obtain financing from these or other sources, or to refinance existing indebtedness upon maturity, our financial condition and results of operations could be adversely affected.
The documents governing our non-recourse indebtedness contain restrictions on the operations of our property owner subsidiaries and their properties. Certain activities, like leasing and alterations, may be subject to the consent of the applicable lender. In addition, certain lenders engage third-party loan servicers that may not be as responsive as we would be or as the leasing market requires.
We face risks associated with refinancings.
Some of the properties in which we have an interest are subject to a mortgage or other secured notes with balloon payments due at maturity. In addition, our corporate level borrowings require interest only payments with all principal due at maturity.
Our ability to make the scheduled balloon payments on any corporate recourse note will depend on our access to the capital markets, including our ability to refinance the maturing note. Our ability to make the scheduled balloon payment on any non-recourse mortgage note will depend upon (1) in the event we determine to contribute capital, our cash balances and the amount available under our unsecured credit facility, and (2) the property owner subsidiary's ability either to refinance the related mortgage debt or to sell the related property. If the property owner subsidiary is unable to refinance or sell the related property, the property may be conveyed to the lender through foreclosure or other means or the property owner subsidiary may declare bankruptcy.
We face risks associated with returning properties to lenders.
Some of the properties in which we have an interest, primarily non-consolidated properties, are subject to non-recourse mortgages, which generally provide that a lender's only recourse upon an event of default is to foreclose on the property. In the event these properties are conveyed via foreclosure to the lenders thereof, we would lose all of our interest in these properties. The loss of a significant number of properties to foreclosure or through bankruptcy of a property owner subsidiary could adversely affect our financial condition and results of operations, relationships with lenders and ability to obtain additional financing in the future.
In addition, a lender may attempt to trigger a carve out to the non-recourse nature of a mortgage loan. To the extent a lender is successful, the ability of our property owner subsidiary to return the property to the lender may be inhibited and/or we may be liable for all or a portion of such loan.
Certain of our indebtedness is subject to cross-default, cross-acceleration and cross-collateral provisions.
Substantially all of our corporate level borrowings and, in the future, certain of our secured indebtedness may, contain cross-default and/or cross-acceleration provisions, which may be triggered if we default on certain indebtedness in excess of certain thresholds. In the event of such a default, the resulting cross defaults and/or cross-accelerations may adversely impact our financial condition.
Two of our non-consolidated joint ventures have portfolio loans where the loans are cross-collateral with a majority of the assets in the portfolio.
The effective subordination of our unsecured indebtedness and any related guaranty may reduce amounts available for payment on our unsecured indebtedness and any related guaranty.
The holders of our secured debt may foreclose on the assets securing such debt, reducing the cash flow from the foreclosed property available for payment of unsecured debt and any related guaranty. The holders of any of our secured debt also would have priority with respect to the secured collateral over unsecured creditors in the event of a bankruptcy, liquidation or similar proceeding.
None of our subsidiaries are guarantors of our unsecured debt; therefore assets of our subsidiaries may not be available to make payments on our unsecured indebtedness.
We are the sole borrower of our unsecured indebtedness and none of our subsidiaries were guarantors of our unsecured indebtedness. In the event of a bankruptcy, liquidation or reorganization of any of our subsidiaries, holders of subsidiary debt, including trade creditors, will generally be entitled to payment of their claims from the assets of our subsidiaries before any assets are made available for distribution to us.
All of our assets are held through our subsidiaries. Consequently, our cash flow and our ability to meet our debt service obligations depend in large part upon the cash flow of our subsidiaries and the payment of funds by our subsidiaries to us in the form of distributions or otherwise.
Risks Related to Investment in our Equity
We may change the dividend policy for our common shares in the future.
The decision to declare and pay dividends on our common shares in the future, as well as the timing, amount and composition of any such future dividends, will be at the sole discretion of our Board of Trustees in light of conditions then existing, including our earnings, financial condition, capital requirements, debt maturities, the availability of debt and equity capital, applicable REIT and legal restrictions and the general overall economic conditions and other factors. The actual dividend payable will be determined by our Board of Trustees based upon the circumstances at the time of declaration and the actual dividend payable may vary from such expected amount. Any change in our dividend policy could have a material adverse effect on the market price of our common shares.
Securities eligible for future sale may have adverse effects on our share price.
We have an unallocated universal shelf registration statement and we also maintain an At-the-Market offering program and a direct share purchase plan, pursuant to which we may issue additional common shares. There is no restriction on our issuing additional common or preferred shares, including any securities that are convertible into or exchangeable for, or that represent the right to receive, common or preferred shares or any substantially similar securities. Pursuant to our At-the-Market offering, we may enter into forward sale agreements. Settlement provisions contained in any forward sale agreement could result in substantial dilution to our earnings per share or result in substantial cash payment obligations. In addition, in the case of our bankruptcy or insolvency, any forward sale agreement will automatically terminate, and we would not receive the expected proceeds from the sale of our common shares under such agreement.
There are certain limitations on a third party's ability to acquire us or effectuate a change in our control.
Severance payments under our executive severance policy. Substantial termination payments may be required to be paid under our executive severance policy applicable to and related agreements with our executives upon the termination of an executive. If those executive officers are terminated without cause, as defined, or resign for good reason, as defined, those executive officers may be entitled to severance benefits based on their current annual base salaries and trailing average of recent annual cash bonuses as defined in our executive severance policy and related agreements and the acceleration of certain non-vested equity awards. In addition, in connection with our Board of Trustees' review of strategic alternatives in 2022, we implemented a severance policy for non-executive employees that provided for payments in connection with a termination following a change in control prior to June 30, 2024. Accordingly, these payments may discourage a third party from acquiring us.
Our ability to issue additional shares. Our declaration of trust authorizes 1,400,000,000 shares of beneficial interest (par value $0.0001 per share) consisting of 600,000,000 common shares, 100,000,000 preferred shares and 700,000,000 shares of beneficial interest classified as excess stock, or excess shares. Our Board of Trustees is authorized to cause us to issue these shares without shareholder approval. Our Board of Trustees may establish the preferences and rights of any such class or series of additional shares, which could have the effect of delaying or preventing someone from taking control of us, even if a change in control were in shareholders' best interests. At December 31, 2023, in addition to common shares, we had outstanding 1,935,400 Series C Preferred Shares. Our Series C Preferred Shares include provisions, such as increases in dividend rates or adjustments to conversion rates, which may deter a change of control. The establishment and issuance of shares of our existing series of preferred shares or a future class or series of shares could make a change of control of us more difficult.
Maryland Takeover Statutes. Certain provisions of the Maryland General Corporation Law, including the Maryland Business Combination Act, the Maryland Control Share Act, and certain elective provisions of Maryland law under Subtitle 8 of the Maryland General Corporation Law, each as further described under the heading “Restrictions on Transfers of Capital Stock and Anti-Takeover Provisions - Maryland Law” in Exhibit 4.10 of this Annual Report, are applicable to Maryland REITs, such as the Company. We are subject to the Maryland Business Combination Act, and while our by-laws contain a provision exempting from the Maryland Control Share Acquisition Act any and all acquisitions by any person of our shares, we cannot assure you that this provision will not be amended or eliminated at any time in the future. We have also not elected to be governed by any of the specific provisions of Subtitle 8, however, through provisions of our declaration of trust and/or by-laws, as applicable, unrelated to Subtitle 8, we provide for an 80% shareholder vote to remove trustees and then only for cause, and that the number of trustees may be determined by a resolution of our Board of Trustees, subject to a minimum number. In addition, we can elect to be governed by any or all of the provisions of Subtitle 8 of the Maryland General Corporation Law at any time in the future. These statutes could have the effect of discouraging offers to acquire us and of increasing the difficulty of consummating any such offers, even if such acquisition would be in shareholders' best interests.
Ownership Limits in Our Declaration of Trust. For us to qualify as a REIT for federal income tax purposes, among other requirements, not more than 50% of the value of our outstanding capital shares may be owned, directly or indirectly, by five or fewer individuals (as defined for federal income tax purposes to include certain entities) during the last half of each taxable year, and these capital shares must be beneficially owned by 100 or more persons during at least 335 days of a taxable year of 12 months or during a proportionate part of a shorter taxable year (in each case, other than the first such year for which a REIT election is made). Our declaration of trust includes certain restrictions regarding transfers of our capital shares and ownership limits.
In order to protect against the loss of our REIT status, among other things, actual or constructive ownership of our capital shares in violation of the restrictions contained in our declaration of trust or in excess of 9.8% in value of our outstanding equity shares, defined as our common shares, or preferred shares, subject to certain exceptions, would cause the violative transfer or ownership to be void or cause the shares to be transferred to a charitable trust and then sold to a person or entity who can own the shares without violating these limits. As a result, if a violative transfer were made, the recipient of the shares would not acquire any economic or voting rights attributable to the transferred shares. Additionally, the constructive ownership rules for these limits are complex, and groups of related individuals or entities may be deemed a single owner and consequently in violation of the share ownership limits.
However, these restrictions and limits may not be adequate in all cases to prevent the transfer of our capital shares in violation of the ownership limitations.
Legal and Regulatory Risks
We face possible liability relating to environmental matters.
Under various federal, state and local environmental laws, statutes, ordinances, rules and regulations, as an owner of real property, our property owner subsidiaries may be liable for the costs of removal or remediation of certain hazardous or toxic substances at, on, in or under the properties in which we have an interest as well as certain other potential costs relating to hazardous or toxic substances. These liabilities may include government fines and penalties and damages for injuries to persons and adjacent property. These laws may impose liability without regard to whether we knew of, or were responsible for, the presence or disposal of those substances. This liability may be imposed on our property owner subsidiaries in connection with the activities of an operator of, or tenant at, the property. The cost of any required remediation, removal, fines or personal or property damages, and our liability therefore, could be significant and could exceed the value of the property and/or our aggregate assets. In addition, the presence of those substances, or the failure to properly dispose of or remove those substances, may adversely affect a property owner subsidiary's ability to sell or rent that property or to borrow using that property as collateral, which, in turn, would reduce our revenues and ability to satisfy our debt service obligations and to pay dividends.
A property can also be adversely affected either through physical contamination or by virtue of an adverse effect upon value attributable to the migration of hazardous or toxic substances, or other contaminants that have or may have emanated from other properties. Although the tenants of the properties in which we have an interest are primarily responsible for any environmental damages and claims related to the leased premises, in the event of the bankruptcy or inability of any of the tenants of the properties in which we have an interest to satisfy any obligations with respect to the property leased to that tenant, our property owner subsidiary may be required to satisfy such obligations. In addition, we may be held directly liable for any such damages or claims irrespective of the provisions of any lease and, in certain cases, we have provided lenders with environmental indemnities.
From time to time, in connection with the conduct of our business, our property owner subsidiaries authorize the preparation of Phase I environmental reports and, when recommended, Phase II environmental reports, with respect to their properties. There can be no assurance that these environmental reports will reveal all environmental conditions at the properties in which we have an interest. We are also subject to exposure to material liability from the discovery of previously unknown environmental conditions; changes in law; activities of tenants; or activities relating to properties in the vicinity of the properties in which we have an interest.
Changes in laws increasing the potential liability for environmental conditions existing on properties or increasing the restrictions on discharges or other conditions may result in significant unanticipated expenditures or may otherwise adversely affect the operations of the tenants of the properties in which we have an interest, which could adversely affect our financial condition or results of operations.
Costs of complying with changes in governmental laws and regulations may adversely affect our results of operations.
We cannot predict what laws or regulations may be enacted, repealed or modified in the future, how future laws or regulations will be administered or interpreted, or how future laws or regulations will affect our properties. Compliance with new or modified laws or regulations, or stricter interpretation of existing laws, may require us or our tenants to incur significant expenditures, impose significant liability, restrict or prohibit business activities and could cause a material adverse effect on our results of operations.
Legislation such as the Americans with Disabilities Act may require us to modify our properties at substantial costs and noncompliance could result in the imposition of fines or an award of damages to private litigants. Future legislation may impose additional requirements. We may incur additional costs to comply with any future requirements.
Risks Related to Our REIT Status
There can be no assurance that we will remain qualified as a REIT for federal income tax purposes.
We believe that LXP has met the requirements for qualification as a REIT for federal income tax purposes beginning with its taxable year ended December 31, 1993, and we intend for LXP to continue to meet these requirements in the future. However, qualification as a REIT involves the application of highly technical and complex provisions of the Code, for which there are only limited judicial or administrative interpretations. The determination of various factual matters and circumstances not entirely within our control may affect LXP's ability to continue to qualify as a REIT. No assurance can be given that LXP has qualified or will remain qualified as a REIT. In addition, no assurance can be given that legislation, regulations, administrative interpretations or court decisions will not significantly change the requirements for qualification as a REIT or the federal income tax consequences of such qualification. If LXP does not qualify as a REIT, LXP would not be allowed a deduction for dividends paid to shareholders in computing its net taxable income and LXP would not be required to continue making distributions. In addition, LXP's income would be subject to tax at the regular corporate rates. LXP also could be disqualified from treatment as a REIT for the four taxable years following the year during which qualification was lost. Cash required to be used to pay taxes would not be available to satisfy LXP's debt service obligations and to make distributions to its shareholders. Although we currently intend for LXP to continue to qualify as a REIT, it is possible that future economic, market, legal, tax or other considerations may cause LXP, without the consent of the shareholders, to revoke the REIT election or to otherwise take action that would result in disqualification.
We may be subject to the REIT prohibited transactions tax, which could result in significant U.S. federal income tax liability to us.
A REIT will incur a 100% tax on the net income from a prohibited transaction. Generally, a prohibited transaction includes a sale or disposition of property held primarily for sale to customers in the ordinary course of business. While we believe that the dispositions of our assets pursuant to our investment strategy should not be treated as prohibited transactions, whether a particular sale will be treated as a prohibited transaction depends on the underlying facts and circumstances. We have not sought and do not intend to seek a ruling from the Internal Revenue Service regarding any dispositions. Accordingly, there can be no assurance that our dispositions of such assets will not be subject to the prohibited transactions tax. If all or a significant portion of those dispositions were treated as prohibited transactions, we would incur a significant U.S. federal income tax liability, which could have a material adverse effect on our financial position.
Distribution requirements imposed by law limit our flexibility.
To maintain LXP's status as a REIT for federal income tax purposes, LXP is generally required to distribute to its shareholders at least 90% of its taxable income for that calendar year. LXP's taxable income is determined without regard to any deduction for dividends paid and by excluding net capital gains. To the extent that LXP satisfies the distribution requirement but distributes less than 100% of its taxable income, LXP will be subject to federal corporate income tax on its undistributed income. In addition, LXP will incur a 4% nondeductible excise tax on the amount by which its distributions in any year are less than the sum of (i) 85% of its ordinary income for that year, (ii) 95% of its capital gain net income for that year and (iii) 100% of its undistributed taxable income from prior years. We intend for LXP to continue to make distributions to its shareholders to comply with the distribution requirements of the Code and to reduce exposure to federal taxes. Differences in timing between the receipt of income and the payment of expenses in determining its taxable income and the effect of required debt amortization payments could require LXP to borrow funds on a short-term basis in order to meet the distribution requirements that are necessary to achieve the tax benefits associated with qualifying as a REIT.
Legislative or regulatory tax changes could have an adverse effect on us.
At any time, the federal income tax laws governing REITs or the administrative interpretations of those laws may be amended. Any of those new laws or interpretations may take effect retroactively and could adversely affect us or you as a debt or equity security holder.
Federal tax legislation passed in 2017 made numerous changes to tax rules. These changes do not affect the REIT qualification rules directly, but may otherwise affect us or our shareholders. For example, the top federal income tax rate for individuals was reduced to 37%, there is a deduction available for certain Qualified Business Income that reduces the top effective tax rate applicable to ordinary dividends from REITs to 29.6% (through a 20% deduction for ordinary REIT dividends received) and various deductions are eliminated or limited. Most of the changes applicable to individuals are temporary.
General Risk Factors
A downgrade in our credit ratings could have a material adverse effect on our business and financial condition.
The credit ratings assigned to us and our debt could change based upon, among other things, our results of operations and financial condition or the real estate industry generally. These ratings are subject to ongoing evaluation by credit rating agencies, and we cannot assure you that any rating will not be changed or withdrawn by a rating agency in the future if, in the applicable rating agency's judgment, circumstances warrant. Moreover, these credit ratings do not apply to our common and preferred shares and are not recommendations to buy, sell or hold any other securities. Any downgrade of us or our debt could have a material adverse effect on the market price of our debt securities and our common and preferred shares. If any credit rating agency that has rated us or our debt downgrades or lowers its credit rating, or if any credit rating agency indicates that it has placed any such rating on a so-called “watch list” for a possible downgrading or lowering or otherwise indicates that its outlook for that rating is negative, it could also have a material adverse effect on our costs and availability of capital, which could, in turn, have a material adverse effect on our financial condition, results of operations, cash flows and our ability to satisfy our debt service obligations and to make dividends and distributions on our common shares and preferred shares.
We are dependent upon our key personnel.
We are dependent upon key personnel, particularly certain of our executive officers. We do not have employment agreements with our executive officers, but we have entered into severance arrangements with our executive officers that provide certain payments upon specified termination events.
Our inability to retain the services of any of our key personnel, an unplanned loss of any of their services or our inability to replace them upon termination as needed, could adversely impact our operations. We do not have key man life insurance coverage on our executive officers.

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ITEM 1B. UNRESOLVED STAFF COMMENTS
Item 1B. Unresolved Staff Comments
There are no unresolved written comments that were received from the SEC staff relating to our periodic or current reports under the Securities Exchange Act of 1934.

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ITEM 2. PROPERTIES
Item 2. Properties
Real Estate Portfolio
General. As of December 31, 2023, we had ownership interests in approximately 115 consolidated real estate properties containing approximately 54.6 million square feet of rentable space, which were approximately 99.8% leased based upon net rentable square feet. All properties in which we have an interest are held through at least one property owner subsidiary.
Ground Leases. Certain of the properties in which we have an interest are subject to long-term ground leases where either the tenant of the building on the property or a third party owns and leases the underlying land to the property owner subsidiary. Certain of these properties are economically owned through the holding of industrial revenue bonds primarily for real estate tax abatement purposes and as such, neither ground lease payments nor bond interest payments are made or received, respectively. For certain of the properties held under a ground lease, the ground lessee has a purchase option. At the end of these long-term ground leases, unless extended or the purchase option is exercised, the land together with all improvements thereon reverts to the landowner.
Office Leases. We lease our headquarters office space in New York, New York and our satellite offices in Dallas, Texas and West Palm Beach, Florida.
Property-Level Leverage. As of December 31, 2023, we had outstanding consolidated mortgages and notes payable of approximately $60.9 million with a weighted-average interest rate of approximately 4.0% and a weighted-average maturity of 6.4 years.
Property Charts. The following tables list our properties by type, their locations, the net rentable square feet, the expiration of the current lease term and percent leased, as applicable, as of December 31, 2023.
LXP CONSOLIDATED PORTFOLIOPROPERTY CHART
WAREHOUSE/DISTRIBUTION
As of December 31, 2023
Property Location City State Net Rentable Square Feet Primary Tenant Current Lease Term Expiration Percent Leased
Stabilized Properties:
3405 S. McQueen Rd. Chandler AZ 201,784 3/31/2033 100 %
16811 W. Commerce Dr. Goodyear AZ 540,349 4/30/2026 100 %
17510 W. Thomas Rd. Goodyear AZ 468,182 11/30/2036 100 %
255 143rd Ave. Goodyear AZ 801,424 9/30/2030 100 %
3595 N Cotton Ln. Goodyear AZ 392,278 8/31/2033 100 %
4445 N. 169th Ave. Goodyear AZ 160,140 12/31/2025 100 %
1515 South 91st Ave. Phoenix AZ 496,204 12/31/2027 100 %
8989 W Buckeye Rd. Phoenix AZ 268,872 5/31/2037 100 %
Parcel Number: 501-42-015B Phoenix AZ - 11/5/2042 100 %
9494 W. Buckeye Rd. Tolleson AZ 186,336 9/30/2026 100 %
5275 Drane Field Rd. Lakeland FL 222,134 5/31/2036 100 %
3400 NW 35th Street Rd. Ocala FL 617,055 8/31/2030 100 %
2455 Premier Row Orlando FL 205,016 3/31/2026 100 %
3775 Fancy Farms Rd. Plant City FL 510,484 3/31/2028 100 %
3102 Queen Palm Dr. Tampa FL 229,605 2/28/2026 100 %
95 International Pkwy. Adairsville GA 225,211 3/31/2025 100 %
7875 White Rd. SW Austell GA 604,852 5/31/2025 100 %
41 Busch Dr. Cartersville GA 396,000 9/30/2031 100 %
51 Busch Dr. Cartersville GA 328,000 7/31/2031 100 %
1625 Oakley Industrial Blvd. Fairburn GA 907,675 10/31/2028 100 %
490 Westridge Pkwy. McDonough GA 1,121,120 1/31/2028 100 %
493 Westridge Pkwy. McDonough GA 676,000 10/31/2030 100 %
335 Morgan Lakes Industrial Blvd. Pooler GA 499,500 7/31/2027 100 %
1004 Trade Center Pkwy. Savannah GA 419,667 7/31/2026 100 %
1315 Dean Forest Rd. Savannah GA 88,503 8/31/2025 100 %
1319 Dean Forest Rd. Savannah GA 355,527 6/30/2025 100 %
7225 Goodson Rd. Union City GA 370,000 5/31/2029 100 %
3931 Lakeview Corporate Dr. Edwardsville IL 769,500 9/30/2026 100 %
LXP CONSOLIDATED PORTFOLIOPROPERTY CHART
WAREHOUSE/DISTRIBUTION
As of December 31, 2023
Property Location City State Net Rentable Square Feet Primary Tenant Current Lease Term Expiration Percent Leased
4015 Lakeview Corporate Dr. Edwardsville IL 1,017,780 5/31/2030 100 %
6225 E. Minooka Rd. Minooka IL 1,034,200 9/30/2029 100 %
1460 Cargo Court Minooka IL 705,661 11/30/2029 100 %
200 International Pkwy. S. Minooka IL 473,280 12/31/2029 100 %
1001 Innovation Rd. Rantoul IL 813,126 10/31/2034 100 %
3686 South Central Ave. Rockford IL 93,000 12/31/2027 100 %
749 Southrock Dr. Rockford IL 150,000 12/31/2024 100 %
1627 Veterans Memorial Pkwy. E. Lafayette IN 309,400 9/30/2029 100 %
1285 W. State Road 32 Lebanon IN 741,880 1/31/2029 100 %
180 Bob Glidden Blvd. Whiteland IN 179,530 12/31/2026 100 %
19 Bob Glidden Blvd. Whiteland IN 530,400 3/31/2031 100 %
76 Bob Glidden Blvd. Whiteland IN 168,480 12/31/2026 100 %
4600 Albert S White Dr. Whitestown IN 149,072 12/31/2024 100 %
4900 Albert S White Dr. Whitestown IN 149,072 8/31/2025 100 %
5352 Performance Way Whitestown IN 380,000 7/31/2025 100 %
5424 Albert S. White Dr. Whitestown IN 1,016,244 11/30/2031 100 %
27200 West 157th St. New Century KS 446,500 1/31/2027 100 %
200 Richard Knock Way Walton KY 232,500 12/31/2031 100 %
300 Richard Knock Way Walton KY 544,320 4/30/2032 100 %
1700 47th Ave. North Minneapolis MN 18,620 12/31/2025 100 %
1550 Hwy 302 Byhalia MS 615,600 9/30/2027 100 %
549 Wingo Rd. Byhalia MS 855,878 3/31/2030 100 %
554 Nissan Pkwy. Canton MS 1,466,000 2/28/2027 100 %
11555 Silo Dr. Olive Branch MS 927,742 8/31/2024 100 %
11624 S. Distribution Cv. Olive Branch MS 1,170,218 6/30/2029 100 %
6495 Polk Ln. Olive Branch MS 269,902 5/31/2028 100 %
8500 Nail Rd. Olive Branch MS 716,080 7/31/2029 100 %
671 Washburn Switch Rd. Shelby NC 673,425 5/31/2036 100 %
2203 Sherrill Dr. Statesville NC 639,800 10/31/2026 100 %
LXP CONSOLIDATED PORTFOLIOPROPERTY CHART
WAREHOUSE/DISTRIBUTION
As of December 31, 2023
Property Location City State Net Rentable Square Feet Primary Tenant Current Lease Term Expiration Percent Leased
736 Addison Rd. Erwin NY 408,000 11/30/2026 100 %
29-01 Borden Ave./29-10 Hunters Point Ave. Long Island City NY 140,330 3/31/2028 100 %
351 Chamber Dr. Chillicothe OH 489,150 12/31/2031 100 %
1860 Walcutt Rd. Columbus OH 292,730 11/21/2029 100 %
9800 Schuster Way Etna OH 1,074,840 10/31/2033 100 %
7005 Cochran Rd. Glenwillow OH 458,000 7/31/2025 100 %
191 Arrowhead Dr. Hebron OH 250,410 2/28/2034 100 %
200 Arrowhead Dr. Hebron OH 400,522 8/31/2027 100 %
2155 Rohr Rd. Lockbourne OH 320,190 3/31/2024 100 %
575-599 Gateway Blvd. Monroe OH 194,936 6/30/2024 100 %
600 Gateway Blvd. Monroe OH 994,013 8/31/2027 100 %
675 Gateway Blvd. Monroe OH 143,664 2/28/2032 100 %
700 Gateway Blvd. Monroe OH 1,299,492 6/30/2030 100 %
10345 Philipp Pkwy. Streetsboro OH 649,250 10/31/2026 100 %
250 Rittenhouse Cir. Bristol PA 241,977 11/30/2026 100 %
230 Apple Valley Rd. Duncan SC 275,400 4/30/2029 100 %
231 Apple Valley Rd. Duncan SC 196,000 1/31/2026 100 %
235 Apple Valley Rd. Duncan SC 177,320 10/31/2026 100 %
402 Apple Valley Rd. Duncan SC 235,600 12/31/2029 100 %
417 Apple Valley Rd. Duncan SC 195,000 3/31/2027 100 %
425 Apple Valley Rd. Duncan SC 327,360 9/30/2026 100 %
70 Tyger River Dr. Duncan SC 408,000 1/31/2029 100 %
140 Smith Farms Pkwy. Greer SC 304,884 2/28/2029 100 %
170 Smith Farms Pkwy. Greer SC 797,936 4/30/2035 100 %
21 Inland Pkwy. Greer SC 1,318,680 12/31/2034 100 %
7820 Reidville Rd. Greer SC 210,820 12/31/2027 100 %
7870 Reidville Rd. Greer SC 396,073 9/30/2025 100 %
1021 Tyger Lake Rd. Spartanburg SC 213,200 2/28/2031 100 %
5795 North Blackstock Rd. Spartanburg SC 341,660 7/31/2029 100 %
LXP CONSOLIDATED PORTFOLIOPROPERTY CHART
WAREHOUSE/DISTRIBUTION
As of December 31, 2023
Property Location City State Net Rentable Square Feet Primary Tenant Current Lease Term Expiration Percent Leased
6050 Dana Way Antioch TN 674,528 6/30/2031 100 %
1520 Lauderdale Memorial Hwy. Cleveland TN 851,370 3/31/2031 100 %
201 James Lawrence Rd. Jackson TN 1,062,055 10/31/2027 100 %
633 Garrett Pkwy. Lewisburg TN 310,000 3/31/2026 100 %
3820 Micro Dr. Millington TN 701,819 9/30/2024 100 %
200 Sam Griffin Rd. Smyrna TN 1,505,000 4/30/2027 100 %
2115 East Belt Line Rd. Carrollton TX 356,855 6/30/2035 100 %
3737 Duncanville Rd. Dallas TX 510,400 9/30/2026 100 %
4600 Underwood Rd. Deer Park TX 402,648 12/31/2026 100 %
4005 E. I-30 Grand Prairie TX 215,000 3/31/2037 100 %
13600/13901 Industrial Road Houston TX 132,449 3/31/2038 100 %
1704 S. I-45 Hutchins TX 120,960 6/30/2030 100 %
3201 N. Houston School Rd. Lancaster TX 468,300 1/31/2030 100 %
13930 Pike Rd. Missouri City TX - 4/30/2032 100 %
17505 Interstate Hwy. 35W Northlake TX 500,556 10/31/2034 100 %
8601 E. Sam Lee Ln. Northlake TX 1,214,526 8/31/2029 100 %
10535 Red Bluff Rd. Pasadena TX 257,835 4/30/2029 100 %
10565 Red Bluff Rd. Pasadena TX 248,240 4/30/2025 100 %
4100 Malone Dr. Pasadena TX 233,190 8/31/2028 100 %
9701 New Decade Dr. Pasadena TX 102,863 8/31/2024 100 %
16407 Applewhite Rd. San Antonio TX 849,275 4/30/2027 100 %
2601 Bermuda Hundred Rd. Chester VA 1,034,470 6/30/2030 100 %
150 Mercury Way Winchester VA 324,535 11/30/2024 100 %
291 Parkside Dr. Winchester VA 344,700 5/31/2031 100 %
80 Tyson Dr. Winchester VA 400,400 12/18/2031 100 %
Stabilized total 54,126,539 100 %
Non-Stabilized Properties:
1075 NE 30th St. (2) Ruskin FL 57,690 1/31/2029 42 %
3115 N Houston School Rd. Lancaster TX 124,450 N/A - %
Non-Stabilized total 182,140 21.9 %
Warehouse/Distribution total 54,308,679 99.8 %
(1) Includes industrial development leased land.
(2) During 2023, a portion of a 138,673 square foot warehouse/distribution facility reached substantial completion and was placed into service upon the tenant taking occupancy. The remaining 80,983 square feet of the facility remains in real estate under construction until the property is stabilized.
As of December 31, 2023, annualized cash base rent for the warehouse/distribution portfolio, excluding assets primarily consisting of land leases was $4.66 per square foot. The weighted-average remaining lease term was 6.0 years.
LXP CONSOLIDATED PORTFOLIOPROPERTY CHART
OTHER
As of December 31, 2023
Property Location City State Net Rentable Square Feet Primary Tenant Current Lease Term Expiration Percent Leased
30 Light St. Baltimore MD - 12/31/2048 100 %
3480 Stateview Blvd. Fort Mill SC 169,218 5/31/2024 100 %
3476 Stateview Blvd. Fort Mill SC 169,083 5/31/2024 100 %
Other total 338,301 100 %
Consolidated portfolio total 54,646,980 99.8 %
As of December 31, 2023, annualized cash base rent for the other portfolio was $12.50 per square foot, excluding Baltimore, Maryland. The weighted-average remaining lease term was 2.1 years.
As of December 31, 2023, annualized cash base rent for the consolidated portfolio was $4.71 per square foot, excluding assets primarily consisting of land leases. The weighted-average remaining lease term was 6.0 years.
LXP NON-CONSOLIDATED PORTFOLIO PROPERTY CHART
As of December 31, 2023
Property Location City State Percent Owned Net Rentable Square Feet Primary Tenant Current Lease Term Expiration Percent Leased
Office/Other properties:
2500 Patrick Henry Pkwy. McDonough GA 20% 111,911 6/30/2029 100 %
3902 Gene Field Rd. St. Joseph MO 20% 98,849 6/30/2027 100 %
1210 AvidXchange Ln. Charlotte NC 20% 201,450 4/30/2032 100 %
2221 Schrock Rd. Columbus OH 20% 42,290 7/6/2027 100 %
500 Olde Worthington Rd. Westerville OH 20% 97,747 3/31/2026 86 %
4001 International Pkwy. Carrollton TX 20% 138,443 12/31/2025 100 %
8900 Freeport Pkwy. Irving TX 20% 261,305 5/31/2033 23.2 %
Office/Other total 951,995 77.5 %
Special purpose industrial properties:
318 Pappy Dunn Blvd. Anniston AL 20% 276,782 11/24/2029 100 %
4801 North Park Dr. Opelika AL 20% 165,493 5/31/2042 100 %
1020 W. Airport Rd. Romeoville IL 20% 188,166 10/31/2031 100 %
10000 Business Blvd. Dry Ridge KY 20% 336,350 6/30/2031 100 %
730 North Black Branch Rd. Elizabethtown KY 20% 167,770 6/30/2025 100 %
750 North Black Branch Rd. Elizabethtown KY 20% 539,592 6/30/2025 100 %
301 Bill Bryan Blvd. Hopkinsville KY 20% 424,904 6/30/2025 100 %
4010 Airpark Dr. Owensboro KY 20% 211,598 6/30/2025 100 %
113 Wells St. North Berwick ME 20% 993,685 4/30/2029 100 %
904 Industrial Rd. Marshall MI 20% 246,508 9/30/2028 100 %
43955 Plymouth Oaks Blvd. Plymouth MI 20% 311,612 10/31/2030 100 %
26700 Bunert Rd. Warren MI 20% 260,243 10/31/2032 100 %
2880 Kenny Biggs Rd. Lumberton NC 20% 423,280 11/30/2026 100 %
5670 Nicco Way North Las Vegas NV 20% 180,235 9/30/2034 100 %
10590 Hamilton Ave. Cincinnati OH 20% 264,598 12/31/2027 100 %
590 Ecology Ln. Chester SC 20% 420,597 7/14/2025 100 %
50 Tyger River Dr. Duncan SC 20% 221,833 8/31/2027 100 %
900 Industrial Blvd. Crossville TN 20% 222,200 9/30/2033 100 %
120 Southeast Pkwy. Dr. Franklin TN 20% 289,330 12/31/2028 100 %
LXP NON-CONSOLIDATED PORTFOLIO PROPERTY CHART
As of December 31, 2023
Property Location City State Percent Owned Net Rentable Square Feet Primary Tenant Current Lease Term Expiration Percent Leased
7007 F.M. 362 Rd. Brookshire TX 20% 262,095 3/31/2035 100 %
13863 Industrial Rd. Houston TX 20% 187,800 3/31/2035 100 %
901 East Bingen Point Way Bingen WA 20% 124,539 12/31/2032 100 %
Special purpose industrial total 6,719,210 100 %
Non-consolidated portfolio total 7,671,205 97.2 %
In addition, we have two non-consolidated joint ventures with a developer, which own developable parcels of land in Etna, Ohio.
As of December 31, 2023, the annualized cash base rent for the non-consolidated portfolio was $7.58 per square foot and the weighted-average remaining lease term was 6.8 years.
Development Projects
The following is a summary of our warehouse/distribution ongoing development projects as of December 31, 2023:
Ongoing Development Projects
Project (% owned) # of Buildings Market Estimated
Sq. Ft. Estimated Project Cost(1)
GAAP Investment Balance as of 12/31/2023
($000)(2)
LXP Amount
Funded as of
12/31/2023
($000)(3)
Building
Completion
Date % Leased as of 12/31/2023 Placed in Service Date
Consolidated:
Development Projects Leased
Cotton 303 (93%)(4)
1 Phoenix, AZ 488,400 $ 55,300 $ 50,716 $ 44,523 1Q 2024 100 % 1Q 2024
1 488,400 55,300 50,716 44,523
Development Projects Available for Lease:
Ocala (80%) 1 Central Florida 1,085,280 $ 85,200 $ 80,184 $ 70,605 1Q 2023 - % -
Mt. Comfort (80%) 1 Indianapolis, IN 1,053,360 66,400 64,489 58,736 1Q 2023 - % -
Smith Farms (90%) 1 Greenville-Spartanburg, SC 1,091,888 76,500 72,411 69,244 2Q 2023 - % -
South Shore (100%)(5)
2 Central Florida 213,195 33,500 29,739 29,771 2Q 2023 - 3Q 2023 - % -
ETNA Building D (100%)(6)
1 Columbus, OH 250,020 30,200 21,816 15,928 1Q 2024 - % -
6 3,693,743 $ 291,800 $ 268,639 $ 244,284
7 4,182,143 $ 347,100 $ 319,355 $ 288,807
Land Held for Industrial Development
Project (% owned) Market Approximate Acres
GAAP Investment Balance as of 12/31/2023
($000)
LXP Amount Funded
as of 12/31/2023
($000)(2)
Consolidated:
Reems & Olive (95.5%)(7)
Phoenix, AZ 320 $ 73,683 $ 74,308
Mt. Comfort Phase II (80%) Indianapolis, IN 116 5,328 4,283
ATL Fairburn (100%) Atlanta, GA 14 1,732 1,751
450 $ 80,743 $ 80,342
Project (% owned) Market Approximate Acres
GAAP Investment Balance as of 12/31/2023
($000)(2)
LXP Amount Funded
as of 12/31/2023
($000)(3)
Non-consolidated:
Etna Park 70 (90%) Columbus, OH 52 $ 10,320 $ 13,778
Etna Park 70 East (90%) Columbus, OH 21 2,245 2,674
73 $ 12,565 $ 16,452
(1)Estimated project cost includes estimated tenant improvements and leasing costs and excludes potential developer fee or partner promote, if any.
(2)Excludes leasing costs.
(3)Excludes noncontrolling interests' share.
(4)Subsequent to December 31, 2023, the property was placed in service.
(5)During the fourth quarter of 2023, a 57,690 square foot portion of the project, representing 23% of the total project was occupied by the tenant and placed in service.
(6)During the fourth quarter of 2023, a wholly-owned subsidiary of LXP purchased approximately 14 acres of land and the partially completed leasehold improvements from ETNA Park 70.
(7)During the fourth quarter of 2023, a perpetual utility easement was granted in exchange for $6.2 million.
Tenant Diversification
We believe our tenant mix is well diversified. Below are the industries in our warehouse/distribution portfolio based on 2023 ABR for consolidated properties owned as of December 31, 2023:
Lease Term. As a primarily single-tenant investor, we generally maintain a weighted-average lease term that is longer than most industrial REITs, favoring certainty of cash flow over lease-rollover risk inherent in single-tenant properties. However, we will invest in shorter-term leases if we are optimistic about the location in a releasing context. As of December 31, 2023, the weighted-average lease term in our industrial portfolio was 6.0 years.
The following table sets forth information about the 15 largest tenants/guarantors in our portfolio as of December 31, 2023 based on total annualized base rental revenue as of December 31, 2023 ($000s, except square feet).
Tenants(1)
Property
Type Lease
Expirations Number of Leases Square Feet
Leased Square Feet
Leased as
a % of the Consolidated Portfolio(2)(3)
ABR Percentage of ABR(2)(4)
Amazon Industrial 2026-2033 6 3,864,731 7.1 % $ 18,593 6.9 %
Nissan Industrial 2027 2 2,971,000 5.4 % 13,082 4.8 %
Kellogg Industrial 2027 & 2029 3 2,801,916 5.1 % 9,738 3.6 %
Black and Decker Industrial 2029 & 2033 2 2,289,366 4.2 % 9,427 3.5 %
Wal-Mart Industrial 2027-2031 3 2,351,917 4.3 % 8,915 3.3 %
GXO Logistics Industrial 2024-2028 3 1,697,475 3.1 % 7,604 2.8 %
Watco Industrial 2038 1 132,449 0.2 % 6,445 2.4 %
FedEx Industrial 2028 2 292,021 0.5 % 6,263 2.3 %
Owens Corning Industrial 2025-2027 3 863,242 1.6 % 5,975 2.2 %
Mars Wrigley Industrial 2025 1 604,852 1.1 % 5,473 2.0 %
Undisclosed (5) Industrial 2034 1 1,318,680 2.4 % 5,315 2.0 %
Aligned Data Centers (6) Industrial 2042 1 - - % 5,228 1.9 %
Olam Industrial 2024 & 2037 2 1,196,614 2.2 % 5,103 1.9 %
Georgia-Pacific Industrial 2028 & 2031 2 1,283,102 2.4 % 4,989 1.8 %
Asics Industrial 2030 1 855,878 1.6 % 4,541 1.7 %
33 22,523,243 41.3 % $ 116,691 43.1 %
(1)Tenant, guarantor or parent.
(2)Total shown may differ from detail amounts due to rounding.
(3)Excludes vacant square feet.
(4)Based on ABR for consolidated properties owned as of December 31, 2023.
(5)Lease restricts certain disclosures
(6)Industrial development leased land, which is included in industrial portfolio.
In 2023, 2022 and 2021, no tenant/guarantor represented greater than 10% of our annual base rental revenue.
The following chart sets forth certain information regarding lease expirations for the next ten years in our consolidated portfolio at December 31, 2023:
Year Number of
Lease Expirations Square Feet ABR ($000's) Percentage of
ABR
2024 13 3,224,253 $ 16,030 5.9 %
2025 13 3,137,998 18,313 6.8 %
2026 25 7,052,764 32,861 12.1 %
2027 16 8,765,734 37,114 13.7 %
2028 8 3,074,237 18,139 6.7 %
2029 18 8,864,350 35,840 13.2 %
2030 10 6,950,840 30,147 11.1 %
2031 12 5,060,431 22,237 8.2 %
2032 3 687,984 5,348 2.0 %
2033 3 1,668,902 12,335 4.6 %
The following chart sets forth ABR ($000's) based on the credit rating of our consolidated tenants at December 31, 2023(1):
ABR Percentage of
ABR
Investment Grade $ 135,165 49.9 %
Non-investment Grade 48,086 17.8 %
Unrated 87,429 32.3 %
$ 270,680 100.0 %
(1) Credit ratings are based upon either tenant, guarantor or parent/ultimate parent. Generally, all multi-tenant assets are included in unrated. See Item 1A “Risk Factors”.

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ITEM 3. LEGAL PROCEEDINGS
Item 3. Legal Proceedings
From time to time we are directly and indirectly involved in legal proceedings arising in the ordinary course of our business. We believe, based on currently available information, and after consultation with legal counsel, that although the outcomes of those normal course proceedings are uncertain, the results of such proceedings, in the aggregate, will not have a material adverse effect on our business, financial condition and results of operations.

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ITEM 4. MINE SAFETY DISCLOSURE
Item 4. Mine Safety Disclosures
Not applicable.
PART II.

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ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
Item 5. Market For Registrant's Common Equity, Related Stockholder Matters And Issuer Purchases of Equity Securities
Market Information. Our common shares are listed for trading on the NYSE under the symbol “LXP”.
Holders. As of February 13, 2024, we had 2,229 common shareholders of record.
Dividends. Since our predecessor's formation in 1993, we have made quarterly distributions without interruption.
While we intend to continue paying regular quarterly dividends to holders of our common shares, the authorization of future dividend declarations will be at the discretion of our Board of Trustees and will depend on our actual cash flow, our financial condition, capital requirements, the annual distribution requirements under the REIT provisions of the Code and such other factors as our Board of Trustees deems relevant. The actual cash flow available to pay dividends will be affected by a number of factors, including, among others, the risks discussed under “Risk Factors” in Part I, Item 1A and “Management's Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of this Annual Report.
We do not believe that the financial covenants contained in our debt instruments will have any adverse impact on our ability to pay dividends in the normal course of business to our common and preferred shareholders or to distribute amounts necessary to maintain our qualification as a REIT.
Equity Compensation Plan Information. The following table sets forth certain information, as of December 31, 2023, with respect to our 2022 Equity-Based Award Plan under which our equity securities are authorized for issuance as compensation.
Number of securities to be issued upon exercise of outstanding options,
warrants and rights
Weighted-average
exercise price of
outstanding options,
warrants and rights Number of securities
remaining available for future issuance under equity compensation plans (excluding
securities reflected in
column (a))
Plan Category (a) (b) (c)
Equity compensation plans approved by security holders - $ - $ 2,994,544
Equity compensation plans not approved by security holders - - -
Total - $ - $ 2,994,544
Recent Sales of Unregistered Securities.
We did not issue any common shares during 2023 on an unregistered basis.
Share Repurchase Program.
There were no common share repurchases during the quarter and year ended December 31, 2023 under our share repurchase authorization most recently announced on August 4, 2022, which has no expiration date. There were 6,874,241 shares that may yet be repurchased under our share repurchase authorization as of December 31, 2023.
Insider Trading.
During the year ended December 31, 2023, no trustee or officer of the Company adopted or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408(a) of Regulation S-K.

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ITEM 6. SELECTED FINANCIAL DATA
Item 6. [Reserved]

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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
In this discussion, we have included statements that may constitute “forward-looking statements” within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are not historical facts but instead represent only our beliefs regarding future events, many of which, by their nature, are inherently uncertain and outside our control. These statements may relate to our future plans and objectives, among other things. By identifying these statements for you in this manner, we are alerting you to the possibility that our actual results may differ, possibly materially, from the anticipated results indicated in these forward-looking statements. Important factors that could cause our results to differ, possibly materially, from those indicated in the forward-looking statements include, among others, those discussed above in “Risk Factors” in Part I, Item 1A of this Annual Report and “Cautionary Statements Concerning Forward-Looking Statements” in the beginning of this Annual Report.
Introduction
The following is a discussion and analysis of the consolidated financial condition and results of operations of LXP Industrial Trust for the years ended December 31, 2023 and 2022, and significant factors that could affect its prospective financial condition and results of operations. This discussion should be read together with our accompanying consolidated financial statements included herein and notes thereto.
Summary of 2023 Transactions
The following summarizes certain of our transactions during 2023.
Leasing Activity.
•We entered into new leases and lease extensions encompassing 6.8 million square feet. The average fixed rent on the second generation new and extended leases was $5.40 per square foot compared to the average fixed rent on these leases before extension of $3.85 per square foot. The weighted-average cost of tenant improvements and lease commissions was $12.31 per square foot for new first generation leases and $1.82 per square foot for second generation new and extended leases.
Investments.
•Acquired one warehouse/distribution facility for a cost of $15.0 million.
•Acquired a 13.8-acre parcel of land and partially completed 250,000 square foot warehouse/distribution facility in Etna, Ohio from a non-consolidated joint venture for $15.9 million.
•Completed core and shell construction of seven warehouse/distribution facilities containing an aggregate of 4.2 million square feet in four target markets.
•Placed into service warehouse/distribution facilities containing an aggregate of 1.8 million square feet in four target markets.
•Invested an aggregate of $122.1 million in development activities, including $85.8 million in ongoing consolidated development projects.
Capital Recycling.
•Disposed of our interests in certain properties and one land parcel for an aggregate gross disposition price of $100.2 million.
•Received $8.1 million and satisfied our share of the proportionate debt from a non-consolidated joint venture, in which we had a 25% interest, upon the disposition of its specialty net-leased asset for $82.0 million and the satisfaction of an aggregate of $48.9 million of non-recourse debt.
•Satisfied our share of the proportionate debt from another non-consolidated joint venture, in which we have a 20% ownership interest, upon the disposition of one of its properties for a disposition price of $30.1 million and the satisfaction of $29.4 million of non-recourse variable rate debt.
Debt.
•Issued $300.0 million aggregate principal amount of 6.75% Senior Notes due 2028 (“2028 Senior Notes”), at an issuance price of 99.423% of the principal amount.
•Amended the agreement governing our $300.0 million term loan to extend the maturity from January 31, 2025 to January 31, 2027.
Investment Trends
General. Over the last several years, we have focused our investment activity primarily on income producing single-tenant warehouse and distribution assets and speculative development of warehouse and distribution assets.
In 2023, we acquired or completed and placed into service $146.4 million of warehouse and distribution assets, which is a decrease of $48.8 million compared to 2022 investment activity of $195.2 million. The decrease was primarily due to the substantial completion of our portfolio transformation efforts and related tax-free exchange capital recycling and the increase in our cost of capital driven by the increase in interest rates. Also there has been a disconnect between buyers and sellers in the real estate market over the last year, which has generally slowed acquisition and disposition activity in our target markets.
As of December 31, 2023, we had two non-industrial assets in our consolidated portfolio, which were held for sale. In addition, we expect to recycle out of certain warehouse and distribution facilities located outside of our target markets over time and use the proceeds to reduce indebtedness and invest in our target markets. While our capital recycling strategy has had and may continue to have a near-term dilutive impact on earnings due to the sales of revenue-producing properties, we believe this strategy will benefit shareholder value in the long term.
The industrial real estate market remains one of the most resilient real estate markets in the current economic environment. The main drivers of growth in the industrial real estate market have been e-commerce and near shoring, where companies increase their inventories in the United States to keep up with demand and to protect against future disruptions in the supply chain.
While we believe the industrial market will continue to grow, there continues to be competition for the acquisition of industrial properties, specifically warehouse/distribution properties. In addition, recessionary fears may cause tenants to reevaluate expansion and growth plans. We continue to prioritize development, specifically build-to-suit projects, over acquisitions of leased properties due to the higher yield that development generally provides.
Lease Term. We primarily acquire assets subject to intermediate and long-term leases with escalating rents, which we believe strengthen our future cash flows and provide a partial hedge against rising interest rates. We intend to maintain a weighted-average lease term longer than many comparable industrial companies and balance our lease expiration schedule.
Our industrial investment underwriting focuses more on real estate characteristics such as location and related demographic and local economic trends than it does on tenant credit. This has allowed us to acquire certain short-term leased warehouse/distribution assets, which may be acquired with greater total return potential than long-term leased warehouse/distribution assets and allow for a value-add strategy through the lease renewal or a multi-tenanting process.
Development. As a result of the competition for income producing single-tenant warehouse/distribution assets, in 2017, we began selectively investing in development projects. We believe we can generally achieve higher yields from development projects than we can by purchasing existing leased properties.
Our development activities have been focused on speculative development and purchasing newly-developed properties with vacancy. Our target markets are experiencing low vacancy rates. In 2024, we expect to focus our development activities on build-to-suit activities and limit the amount of speculative development to markets where there is sufficient tenant demand. In 2022 and 2023, construction starts in our target markets were generally down compared to construction starts in 2020 and 2021. We believe this will result in lower supply in the future and may provide opportunity for more build-to-suit investment.
Leasing
General. Re-leasing properties that are currently vacant or become vacant as leases expire at favorable effective rates is a primary area of focus for our asset management. Renewals of industrial leases, particularly for warehouse/distribution facilities, are generally dependent on location and occupancy alternatives for our tenants.
If a property cannot be re-let to a single user and the property can be adapted to multi-tenant use, we determine whether the costs of adapting the property to multi-tenant use outweigh the benefit of funding operating costs while searching for a single-tenant and whether selling a vacant property, which limits operating costs and allows us to redeploy capital, is in the best interest of our shareholders.
We expect rents in our target markets to remain above existing rents due to strong demand and low vacancy. As of December 31, 2023, we had 11 single-tenant leases in our industrial portfolio where the lease term is scheduled to expire in 2024, covering approximately 2.9 million square feet. As of December 31, 2023, approximately 58.0% of our industrial ABR was from leases scheduled to expire during 2024 through 2029. During the year ended December 31, 2023, we completed 6.8 million square feet of new leases and lease extensions, raising industrial Base and Cash Base Rents by 40.1% and 27.0%, respectively,
and 52.3% and 37.3%, respectively excluding fixed-rate renewals. A considerable portion of our leases expire from 2024 to 2029 and we expect renewals and new lease terms to result in growth in future income.
Inherent Growth. As of December 31, 2023, 98.1% of our industrial leases had scheduled rent increases. The average escalation rate of these leases based on the next rent step was 2.6% as of December 31, 2023. A majority of our leases require tenants to pay operating expenses, including maintenance, real estate taxes, insurance and utilities, thereby reducing our exposure to increases in costs and operating expenses. However, certain of our leases provide for some level of landlord responsibility for capital repairs and replacements, the cost of which is generally factored into the rental rate. Our motivation to release vacant space requires us to meet market demands with respect to rental rates, tenant concessions and landlord responsibilities. Developers are similarly motivated when signing leases with tenants due to the significant competition in the industrial space. As a result, the obligations of our property owner subsidiaries on new leases and newly renewed or extended leases may increase to include, among other items, some form of responsibility for operating expenses and/or capital repairs and replacements.
Tenant Credit. We continue to monitor the credit of tenants of properties in which we have an interest by (1) subscribing to rating agency information, so that we can monitor changes in the ratings of our rated tenants, (2) reviewing financial statements that are publicly available or that are required to be delivered to us under the applicable lease, (3) monitoring news reports regarding our tenants and their respective businesses, (4) monitoring the timeliness of rent collections and (5) meeting with our tenants.
Other properties
We continue to recycle our other real estate investments into warehouse/distribution assets. As of December 31, 2023, we owned three consolidated other real estate assets consisting of two office properties and a land ground lease. The remaining office assets are held for sale and we believe we have obtained the highest possible valuation by pursuing buyers that intend to redevelop the properties. The land ground lease is underlying a parking garage held in a joint venture where our joint venture partner is entitled to most of the cash flow.
Impairment charges
During 2023 and 2022, we incurred impairment charges, of $16.5 million and $3.0 million, respectively, on certain of our assets due to each asset's carrying value being below its estimated fair value. Most of the impairment charges in 2023 and 2022 were incurred on non-core assets due to anticipated shortened holding periods. We cannot estimate if we will incur, or the amount of, future impairment charges on our assets. See Part I, Item 1A “Risk Factors”, of this Annual Report.
Critical Accounting Estimates
In preparing the consolidated financial statements we have made estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Accounting estimates are deemed critical if they involve a significant level of estimation uncertainty and have had or are reasonably likely to have a material impact on our financial condition or results of operations. Below is a summary of the critical accounting estimates used in the preparation of our consolidated financial statements. A summary of our significant accounting policies which are important to the portrayal of our financial condition and results of operations is set forth in Note 2 to the Consolidated Financial Statements, which are included in “Financial Statements and Supplementary Data” in Part II, Item 8 of this Annual Report.
Acquisition and Development of Real Estate. Primarily all of our acquisitions of real estate assets and liabilities are accounted for as asset acquisitions. As such, the purchase prices of acquired tangible and intangible assets and liabilities are recorded and allocated at fair value on a relative basis. The recorded allocations of tangible assets are based on the “as-if-vacant” value using estimated cash flow projections of the properties acquired which incorporates discount, capitalization and interest rates as well as available comparable market information. Allocations of intangible assets includes management’s estimates of current market rents and leasing costs.
We use considerable judgement in our estimates of cash flow projections, discount, capitalization and interest rates, fair market lease rates, carrying costs during hypothetical expected lease-up periods and costs to execute similar leases. While our methodology for purchase price allocation did not change during the year ended December 31, 2023, the real estate market is fluid and our assumptions are based on information currently available in the market at the time of acquisition. Significant increases or decreases in these key estimates, particularly with regards to cash flow projections and discount and capitalization rates, would result in a significantly lower or higher fair value measurement of the real estate assets being acquired.
For properties under development, costs associated with development (i.e., land, construction costs, interest expense, property taxes and other costs associated with development) are aggregated into the total capitalized costs of the property. Included in these costs are management’s estimates for the portions of internal costs (primarily personnel costs) deemed related to such development activities. The internal costs are allocated to specific development projects based on development activities.
Revenue Recognition. We enter into agreements with tenants that convey the right to control the use of identified space at our properties in exchange for rental revenue. These agreements meet the criteria for recognition as leases under Accounting Standards Codification (“ASC”) 842, Leases. Lease classification tests require significant estimates and judgments by management in its application. Upon lease commencement or lease modification, we assess the lease classification to determine whether the lease should be classified as a direct financing, sales-type or operating lease. The determination of lease classification requires the calculation of the rate implicit in the lease, which is driven by significant estimates, including the estimation of both the value assigned to the property components on the lease commencement date or upon acquisition and the estimation of the unguaranteed residual value of such components at the end of the lease term. The determination of the lease term also requires judgement because the probability of purchase options and renewals have to be analyzed to conclude if they are reasonably certain of being exercised. If the lease component is determined to be a direct financing or sales-type lease, revenue is recognized over the life of the lease using the rate implicit in the lease.
Most of our leases are operating leases. We recognize operating lease revenue on a straight-line basis over the term of the lease when it is probable that the lease revenue is collectible over the remaining term of the lease unless another systematic and rational basis is more representative of the time pattern in which the use benefit is derived from the leased property. We commence revenue recognition when possession or control of the space is turned over to the tenant.
Impairment of Real Estate. We record impairments of our real estate assets classified as held for use when triggering events dictate that an asset may be impaired. An impairment is recorded when the carrying amount of the asset exceeds the sum of its undiscounted future operating and residual cash flows. The impairment is the difference between estimated fair value of the asset and the carrying amount. We record impairments of our real estate assets classified as held for sale at the lower of the carrying amount or estimated fair value using the estimated or contracted sales price less costs to sell. Any real estate assets recorded at fair value on a non-recurring basis as a result of our impairment analysis are valued using unobservable local and national industry market data such as comparable sales, appraisals, brokers’ opinions of value and/or terms of definitive sales contracts. Additionally, the analysis includes considerable judgement in our estimates of hold periods, projected cash flows and discount and capitalization rates. Significant increases or decreases in any of these inputs, particularly with regards to cash flow projections and discount and capitalization rates, would result in a significantly lower or higher fair value measurement of the real estate assets being assessed.
We will record an impairment charge related to our investments, including investments in non-consolidated entities, if we determine the fair value of the investments are less than their carrying value and such impairment is other-than-temporary. We evaluate whether events or changes in circumstances indicate that the carrying amount of our investments may not be recoverable. Our evaluation of changes in economic or operating conditions and whether an impairment is other-than-temporary may include developing estimates of fair value, forecasted cash flows or operating income before depreciation and amortization. We estimate undiscounted cash flows and fair value using observable and unobservable data such as operating income, hold periods, estimated capitalization and discount rates, or relevant market multiples, leasing prospects and local market information and whether certain impairments are other-than-temporary.
Allowance for Credit Losses. “ASC 326, Financial Instruments-Credit Losses” (“ASC 326”) requires that we measure and record current expected credit losses for our sales-type lease. We have elected to use a discounted cash flow model to estimate the allowance for credit losses. This model requires us to develop cash flows which project estimated credit losses over the life of the lease and discount these cash flows at the asset’s effective interest rate. We then record an allowance equal to the difference between the amortized cost basis of the asset and the present value of the expected credit loss cash flows.
Expected losses within our cash flows are determined by estimating the probability of default of our tenant and their parent guarantors over the term of the lease. We evaluate the collectability of our investment in a sales-type lease based various probability weighted default scenarios that include, but are not limited to, current payment status, the financial strength of our tenant and its parent guarantors, current economic conditions and 20 years of historical information on corporate defaults for entities with similar credit. Estimates in the discounted cash flow model are highly subjective. We have engaged a nationally recognized data analytics firm to assist us with estimating the probability default of our tenant and their parent guarantor.
We regularly evaluate the extent and impact of any credit deterioration that could affect performance and the value of our investment in a sales-type lease, as well as the financial and operating capability of the tenant. We also evaluate the tenant’s competency in managing and operating the secured property and consider the overall economic environment, real estate sector
and geographic sub-market in which the secured property is located. If a tenant's credit deteriorates and it defaults under the terms of the sales-type lease, we put the lease in non-accrual status until it is determined that all payments under the lease are probable of being collected. The criteria evaluated to determine when a lease is in non-accrual status is subjective.
New Accounting Pronouncements
For a discussion of new accounting pronouncements, see Note 2 “Summary of Significant Accounting Policies” to our consolidated financial statements included in this report.
Liquidity and Capital Resources
Overview:
Our principal sources of liquidity have been (1) undistributed cash flows generated from our investments, (2) proceeds from the sales of our investments, (3) the public and private equity and debt markets, (4) corporate level borrowings, (5) property specific debt, and (6) commitments from co-investment partners. We believe our dividend policy is conservative, and allows us to retain cash flow for internal growth.
Our ability to incur additional debt to fund acquisitions and the cost of any such debt is dependent upon our existing leverage, the value of the assets we are attempting to leverage, our revenues and general economic and credit market conditions, which may be outside of management's control or influence.
Cash Flows:
We believe that cash flows from operations will continue to provide adequate capital to fund our operating and administrative expenses, regular debt service obligations and all dividend payments in accordance with applicable REIT requirements in both the short-term and long-term. However, our cash flow from operations may be negatively affected in the near term if we experience tenant defaults. In addition, we anticipate that cash on hand, borrowings under our unsecured revolving credit facility, capital recycling proceeds, issuances of equity, mortgage proceeds and other debt, as well as other available alternatives, will provide the necessary capital required by our business.
Cash flows from operations as reported in the consolidated statements of cash flows totaled $209.4 million for 2023 and $194.3 million for 2022. The increase was primarily related to increased rental revenue related to lease extensions and placing development properties into service, partially offset by a decrease in cash flow due to property sales. The underlying drivers that impact our working capital, and therefore cash flows from operations, are the timing of collection of rents, including reimbursements from tenants, payment of interest on debt and payment of operating and general and administrative costs. We believe the net-lease structure of the leases encumbering a majority of the properties in which we have an interest mitigates the risks of the timing of cash flows from operations since the payment and timing of operating costs related to the properties are generally borne directly by the tenant. The collection and timing of tenant rents are closely monitored by management as part of our cash management program.
Net cash used in investing activities totaled $183.5 million in 2023 and $236.9 million in 2022. Cash used in investing activities related primarily to acquisitions of real estate, investments in real estate under construction, capital expenditures, lease costs, investments in non-consolidated entities. Cash provided by investing activities primarily related to net proceeds received from the disposition of real estate and distributions from non-consolidated entities and the receipt of principal payments on a note receivable and changes in real estate deposits, net.
Net cash provided by (used in) financing activities totaled $119.0 million in 2023 and ($93.9) million in 2022. Cash provided by financing activities in 2023 was primarily related to the receipt of proceeds from the issuance of the 2028 Senior Notes and borrowings on the credit facility, offset by the repurchase of common shares to settle tax obligations, the purchase of a noncontrolling interest and dividend and debt service payments, Cash used in financing activities in 2022 was primarily related to the repurchase of common shares, the purchase of a noncontrolling interest and dividend and debt service payments, offset by common share issuances and contributions from noncontrolling interests.
Public and Private Equity and Debt Markets
We access the public and private equity and debt markets on an opportunistic basis when we (1) believe conditions are favorable and (2) have a compelling use of proceeds.
We expect to continue to access debt and equity markets in the future to implement our business strategy and to fund future growth when market conditions are favorable. However, the volatility in the capital markets primarily resulting from the effects of rising interest rates and rising inflation have negatively affect our ability to access these capital markets.
Equity:
At-The-Market Offering Program. We maintain an At-The-Market offering program, or ATM program, under which we can issue common shares, including through forward contracts.
During 2021, we amended the terms of our ATM offering program, under which we may, from time to time, sell up to $350.0 million common shares over the term of the program. As of December 31, 2023, common shares with an aggregate value of $295.0 million remain available for issuance under the ATM program.
During 2022, we issued 3.6 million common shares previously sold on a forward basis under our ATM program in the first quarter of 2021 on the maturity date of the contracts and received $38.5 million of net proceeds. We did not issue common shares under the ATM program during 2023.
Underwritten equity offerings. In December 2022, we issued 16.0 million common shares and we received $183.4 million of net proceeds related to an underwritten equity offering in 2021, which was sold on a forward basis. There were no underwritten equity offerings in 2023.
Direct Share Purchase Plan. We maintain a direct share purchase plan, which has two components, (i) a dividend reinvestment component and (ii) a direct share purchase component. Under the dividend reinvestment component, common shareholders and holders of OP units may elect to automatically reinvest their dividends and distributions to purchase our common shares. Under the direct share purchase component, our current investors and new investors can make optional cash purchases of our common shares. The administrator of the plan, Computershare Trust Company, N.A., purchases common shares for the accounts of the participants under the plan, at our discretion, either directly from us, on the open market or through a combination of those two options. No shares were purchased from us under the plan in 2023 and 2022.
Share Repurchase Program. In August 2022, our Board of Trustees authorized the repurchase of up to an additional 10.0 million common shares under our share repurchase program, which does not have an expiration date. During 2022, 12.1 million common shares were repurchased and retired for an average price of $10.78 per share. No shares were repurchased in 2023. As of December 31, 2023, 6.9 million common shares remain available for repurchase under this authorization.
Debt:
Corporate Borrowings. In 2023, we issued $300.0 million aggregate principal amount of our 2028 Senior Notes. We used the proceeds to pay down all amounts under our unsecured revolving credit facility and invested the remaining proceeds in cash and cash equivalents and short-term investments to fund general corporate purposes, including to repay other indebtedness at or in advance of maturity and to fund our development pipeline.
The following Senior Notes were outstanding as of December 31, 2023:
Issue Date Face Amount (millions) Interest Rate Maturity Date Issue Price
November 2023 $ 300.0 6.750 % November 2028 99.423 %
August 2021 400.0 2.375 % October 2031 99.758 %
August 2020 400.0 2.70 % September 2030 99.233 %
May 2014 198.9 4.40 % June 2024 99.883 %
$ 1,298.9
The Senior Notes are unsecured and pay interest semi-annually in arrears. We may redeem the Senior Notes at our option at any time prior to maturity in whole or in part by paying the principal amount of the Senior Notes being redeemed plus a make-whole premium.
A summary of the maturity dates and interest rates under our unsecured credit agreement, as of December 31, 2023, are as follows:
Maturity Date Interest Rate
$600.0 Million Revolving Credit Facility(1)
07/2026 SOFR + 0.85%
$300.0 Million Term Loan(2)
01/2027 Term SOFR + 1.00%
(1)Maturity date of the revolving credit facility can be extended to July 2027, subject to certain conditions. The interest rate ranges from SOFR (plus a 0.10% index adjustment) plus 0.725% to 1.40%. At December 31, 2023, we had no borrowings outstanding and availability of $600.0 million, subject to covenant compliance.
(2)In November 2023, we amended the agreement governing our $300 million term loan. The amendment among other things extends the maturity of the term loan from January 31, 2025 to January 31, 2027. The Term SOFR portion of the interest rate remains swapped to obtain a current fixed rate of 2.722% per annum until January 31, 2025.
As of December 31, 2023, we were in compliance with the financial covenants contained in our corporate level debt agreements.
During 2007, we issued $200.0 million in Trust Preferred Securities, which bore interest at a fixed rate of 6.804% through April 2017 and, thereafter, bears interest at a variable rate of three-month SOFR plus a 26 basis point adjustment plus 170 basis points. These securities are (1) classified as debt, (2) due in 2037 and (3) currently redeemable by us. As of December 31, 2023, there were $129.1 million of these securities outstanding.
Property Specific Debt. As of December 31, 2023, we have a limited number of consolidated properties subject to mortgages. Our property owner subsidiaries do not have mortgage maturities with balloon payments due until 2031. With respect to mortgages encumbering properties where the expected lease rental revenues are sufficient to provide an estimated property value in excess of the mortgage balance, we believe our property owner subsidiaries have sufficient sources of liquidity to meet these obligations through future cash flows from operations, the credit markets and, if determined appropriate by us, a capital contribution from us from either cash on hand and short-term investments ($199.2 million and $130.1 million, respectively, at December 31, 2023), property sale proceeds or borrowing capacity on our primary credit facility ($600.0 million as of December 31, 2023, subject to covenant compliance).
Our secured debt decreased to approximately $60.9 million at December 31, 2023 compared to $73.2 million at December 31, 2022. We expect to continue to use property specific, non-recourse mortgages in certain situations as we believe that by properly matching a debt obligation, including the balloon maturity risk, with the terms of a lease, our cash-on-cash returns increase and the exposure to residual valuation risk is reduced. In addition, we may procure credit tenant lease financing in certain situations where we are able to monetize all or a significant portion of the rental revenues of a property at an attractive rate.
Institutional Fund Management:
We have entered into co-investment programs and joint ventures with institutional investors to mitigate our risk in certain assets and increase our return on equity to the extent we earn management or other fees. However, investments in certain co-investment programs and joint ventures limit our ability to make investment decisions unilaterally relating to the assets and limit our ability to deploy capital.
The real estate investments owned by our institutional joint ventures are generally financed with non-recourse debt. Non-recourse debt is generally defined as debt whereby the lenders' sole recourse with respect to borrower defaults is limited to the value of the assets collateralized by the debt. The lender generally does not have recourse against any other assets owned by the borrower or any of the members or partners of the borrower, except for certain specified exceptions listed in the particular loan documents. These exceptions generally relate to “bad boy” acts, including fraud, prohibited transfers and breaches of material representations, and environmental matters. We have guaranteed such obligations for certain of our non-consolidated entities with respect to $458.6 million of such non-recourse debt. We believe the likelihood of making any payments under such guaranties is remote and we generally have an agreement from each partner to reimburse us for its proportionate share of any liability related to a guarantee trigger unless such trigger is caused solely by us.
Capital Recycling:
Part of our strategy to effectively manage our balance sheet involves pursuing and executing well on property dispositions and recycling of capital. During 2023, we disposed of our interests in one industrial property, three other properties and one land parcel for an aggregate gross price of $100.2 million. Additionally, the Office JV disposed of one property for $30.1 million of gross proceeds and repaid an aggregate of $29.4 million of non-recourse debt. Additionally, a non-consolidated joint venture, in which we held a 25% ownership interest, disposed of one property for $82.0 million of gross proceeds and we received a distribution of $8.1 million after repayment of $48.9 million of non-recourse debt. The proceeds of our capital recycling efforts were primarily used to (1) fund the development pipeline and (2) make investments in real property.
As we near the completion of the capital recycling of our non-industrial assets, we have recycled, and we expect to continue our recycling efforts with respect to our older industrial assets and/or those outside our target markets. We believe capital recycling (1) provides cost effective and timely capital to deleverage and to support for our investment activities and (2) allows us to maintain line capacity and cash in advance of our development commitments.
Liquidity Needs:
Our principal liquidity needs are debt maturities, interest payment obligations, the payment of dividends to our shareholders and funding our development projects.
As of December 31, 2023, we had approximately $1.8 billion of indebtedness, consisting of mortgages and notes payable outstanding, a term loan, 6.75%, 2.375%, 2.70%, and 4.40% Senior Notes and Trust Preferred Securities, with a weighted-average interest rate of approximately 3.9%. The ability of a property owner subsidiary to make debt service payments depends upon the rental revenues of its property and its ability to refinance the mortgage related thereto, sell the related property, or access capital from us or other sources. A property owner subsidiary's ability to accomplish such goals will be affected by numerous economic factors affecting the real estate industry, including the risks described under “Risk Factors” in Part I, Item 1A of this Annual Report.
We expect to be able to satisfy the maturity of our 4.40% Senior Notes from cash and cash equivalent and short-term investments. We expect to pay our non-maturity debt service obligations from cash flow from operations.
If we are unable to satisfy our contractual obligations and other operating costs with our cash flow from operations, we intend to use borrowings and proceeds from issuances of equity or debt securities. If a property owner subsidiary is unable to satisfy its contractual obligations and other operating costs, it may default on its obligations and lose its assets in foreclosure or through bankruptcy proceedings.
In connection with our intention to continue to qualify as a REIT for federal income tax purposes, we expect to continue paying regular dividends to our shareholders. These dividends are expected to be paid from operating cash flows and/or from other sources. Since cash used to pay dividends reduces amounts available for capital investments, we generally intend to maintain a conservative dividend payout ratio, reserving such amounts as we consider necessary for the maintenance or expansion of properties in our portfolio, debt reduction, the acquisition of interests in new properties as suitable opportunities arise, and such other factors as our Board of Trustees considers appropriate.
We paid approximately $151.9 million in cash dividends to our common and preferred shareholders in 2023. Although our property owner subsidiaries receive the majority of our base rental payments on a monthly basis, we intend to continue paying dividends quarterly. Amounts accumulated in advance of each quarterly distribution are invested by us in short-term money market or other suitable instruments.
As of December 31, 2023, we expect to incur approximately $53.2 million of costs, excluding noncontrolling interests' share and potential developer fees or partner buyouts, to substantially fund our consolidated development project commitments. As of December 31, 2023, we had three consolidated and two non-consolidated subsidiaries that owned land parcels held for industrial development. We are unable to estimate the timing of any required fundings for potential development projects on these parcels.
Non-Development Capital Expenditures:
General. Due to the net-lease structure of a majority of our investments, our property owner subsidiaries historically have not incurred significant expenditures in the ordinary course of business to maintain the properties in which we have an interest. As leases expire, we expect our property owner subsidiaries to incur costs in extending the existing tenant leases, re-tenanting the properties with a single-tenant, or converting the property to multi-tenant use. The amounts of these expenditures can vary significantly depending on tenant negotiations, market conditions, rental rates and property type.
Single-Tenant Properties. We do not anticipate significant capital expenditures at the single-tenant properties in which we have an interest that are subject to net or similar leases since the tenants at these properties generally bear all or substantially all of the cost of property operations, maintenance and repairs. However, at certain properties subject to net leases, our property owner subsidiaries are responsible for replacement and/or repair of certain capital items, which may or may not be reimbursed. In addition, at certain single-tenant properties that are not subject to a net lease, our property owner subsidiaries have a level of property operating expense responsibility, which may or may not be reimbursed.
Multi-Tenant Properties. Primarily as a result of non-renewals at single-tenant net-lease properties, we have interests in multi-tenant properties in our consolidated portfolio. While tenants of these properties are generally responsible for operating expenses in their spaces, but we are responsible for all expenses related to vacant space and certain non-reimbursable building expenses, at these properties.
Vacant Properties. To the extent there is a vacancy in a property, our property owner subsidiary would be obligated for all operating expenses, including capital expenditures, real estate taxes and insurance. When a property is vacant, our property owner subsidiary may incur substantial capital expenditure and releasing costs to re-tenant the property. However, we believe that, over the long term, our focus on industrial assets will result in significant savings compared to investing in office assets due to the lower operating and re-tenanting costs of industrial assets compared to office assets.
Property Expansions. Under certain leases, tenants have the right to expand the facility located on a property in which we have an interest. We expect our property owner subsidiaries may fund these property expansions with either additional secured borrowings, the repayment of which will be funded out of rental increases under the leases covering the expanded properties, or capital contributions from us.
Ground Leases. The tenants of properties in which we have an interest generally pay the rental obligations on ground leases either directly to the fee holder or to our property owner subsidiary as increased rent. However, our property owner subsidiaries are responsible for these payments (1) under certain leases without reimbursement and (2) at vacant properties.
Environmental Matters. Based upon management's ongoing review of the properties in which we have an interest, management is not aware of any environmental condition with respect to any of these properties that would be reasonably likely to have a material adverse effect on us. There can be no assurance, however, that (1) the discovery of environmental conditions, which were previously unknown, (2) changes in law, (3) the conduct of tenants or (4) activities relating to properties in the vicinity of the properties in which we have an interest, will not expose us to material liability in the future. Changes in laws increasing the potential liability for environmental conditions existing on properties or increasing the restrictions on discharges or other conditions may result in significant unanticipated expenditures or may otherwise adversely affect the operations of the tenants of properties in which we have an interest.
Results of Operations
Year ended December 31, 2023 compared with December 31, 2022. The decrease in net income attributable to common shareholders of $83.4 million was primarily due to the items discussed below.
The increase in total gross revenues of $19.3 million was primarily due to an increase of $12.8 million in base rental revenue and a $7.4 million increase in tenant reimbursement income primarily due to acquisitions, properties placed in service and increases in market rental rates, partially offset by property sales.
The increase in depreciation and amortization expense of $3.0 million was primarily due to properties acquired and/or completed and placed in service subsequent to January 1, 2022.
The increase in property operating expense of $3.5 million was primarily due to an increase in operating expense responsibilities at certain properties.
The decrease of $2.4 million in general and administrative expense was primarily related to a decrease of $2.6 million in costs incurred related to the Board of Trustees' strategic alternatives review and consulting costs related to shareholder activism in 2022. No consulting costs were incurred related to shareholder activism during the year ended December 31, 2023.
The decrease in transaction costs of $4.2 million was due to the recognition of direct costs of a sales-type lease in 2022 with no comparable transaction in 2023.
The increase in non-operating income of $2.0 million was primarily due to an increase in interest income earned from investing some of the proceeds received from the 2028 Senior Notes.
The increase in interest and amortization expense of $1.0 million is primarily due to a $4.4 million increase in variable interest expense related to the Trust Preferred Securities in 2023 compared to 2022. Additionally, the 2028 Senior Notes were issued in November 2023 resulting in a $2.7 million increase to interest expense. These increases were partially offset by an increase of $3.8 million in capitalized interest primarily related to our development projects and a decrease of $2.1 million of interest expense incurred due to a decrease in borrowings on the credit facility during 2023 compared to 2022.
The increase in impairment charges of $13.5 million was primarily related to the timing of impairment charges recognized on certain properties. The impairments in 2023 were taken on office assets primarily due to potential sales.
The decrease in gains on sales of properties of $26.1 million was related to the timing of property dispositions.
The decrease in selling profit from sales-type lease of $47.1 million was due to three leases qualifying as sales-type leases in 2022 with no comparable transaction in 2023.
The decrease in equity in earnings (losses) of non-consolidated entities of $14.6 million was primarily due to the timing of property sales within our non-consolidated entities.
The increase in net income attributable to noncontrolling interest holders of $3.1 million was primarily due to the timing of property dispositions resulting in an increase in noncontrolling interest income of $4.7 million in 2023 compared to 2022. The increase was offset by $1.5 million allocated to noncontrolling interest holders for their share of selling profit on a sales-type lease in 2022, with no comparable transactions in 2023.
The increase in net income or decrease in net loss in future periods will be closely tied to the level of acquisitions made by us. Without acquisitions, the sources of growth in net income are limited to fixed rent adjustments and index adjustments (such as the consumer price index), reduced interest expense on amortizing mortgages and variable rate indebtedness and by controlling other variable overhead costs. However, there are many factors beyond management's control that could offset these items including, without limitation, changes in economic conditions such as the recent economic uncertainty increased interest rates and tenant monetary defaults and the other risks described in this Annual Report.
The analysis of the results of operations for the year ended December 31, 2022 compared with December 31, 2021 is included in our 2022 Annual Report on Form 10-K, which was filed with the Securities and Exchange Commission, on February 16, 2023.
Same-Store Results
Same-store net operating income, or NOI, which is a non-GAAP measure, represents the NOI for consolidated properties that were owned, stabilized and included in our portfolio for two comparable reporting periods. We define NOI as operating revenues (rental income (less GAAP rent adjustments, non-cash income related to sales-type leases and lease termination income, net), and other property income) less property operating expenses. Other REITs may use different methodologies for calculating same-store NOI, and accordingly same-store NOI may not be comparable to other REITs. Management believes that same-store NOI is a useful supplemental measure of our operating performance because same-store NOI excludes the change in NOI from acquired and disposed of properties and it highlights operating trends such as occupancy levels, rental rates and operating costs on properties. However, same-store NOI should not be viewed as an alternative measure of our financial performance since it does not reflect the operations of our entire portfolio, nor does it reflect the impact of general and administrative expenses, acquisition-related expenses, interest expense, depreciation and amortization costs, other nonproperty income and losses, the level of capital expenditures and leasing costs necessary to maintain the operating performance of our properties, or trends in development and construction activities which are significant economic costs and activities that could materially impact our results from operations. We believe that net income is the most directly comparable GAAP measure to same-store NOI.
The following presents our consolidated same-store NOI, for the years ended December 31, 2023 and 2022 ($000):
Years Ended December 31,
2023 2022
Total cash base rent $ 227,323 $ 218,772
Tenant reimbursements 43,928 37,148
Property operating expenses (45,964) (39,357)
Same-store NOI $ 225,287 $ 216,563
Our reported same-store NOI increased from 2022 to 2023 by 4.0% primarily due to an increase in occupancy and cash base rents. As of December 31, 2023 and 2022, our historical same-store square footage leased was 100% and 99.8%, respectively.
Below is a reconciliation of net income to same-store NOI for periods presented:
Years ended December 31,
2023 2022
Net income $ 35,923 $ 116,243
Interest and amortization expense 46,389 45,417
Provision for income taxes 703 1,102
Depreciation and amortization 183,524 180,567
General and administrative 36,334 38,714
Transaction costs 4 4,177
Non-operating/advisory fee income (7,319) (6,550)
Gains on sales of properties (33,010) (59,094)
Impairment charges 16,490 3,037
Selling profit from sales-type leases - (47,059)
Debt satisfaction losses, net 132 119
Equity in earnings losses of non-consolidated entities (1,366) (16,006)
Lease termination income, net - (238)
Straight-line adjustments (9,688) (11,412)
Lease incentives 439 518
Amortization of above/below market leases (1,796) (1,865)
Sales-type lease adjustments (2,231) (249)
NOI 264,528 247,421
Less NOI:
Acquisitions, development and dispositions (39,241) (30,858)
Same-Store NOI $ 225,287 $ 216,563
Funds From Operations
We believe that Funds from Operations, or FFO, which is a non-GAAP measure, is a widely recognized and appropriate measure of the performance of an equity REIT. We believe FFO is frequently used by securities analysts, investors and other interested parties in the evaluation of REITs, many of which present FFO when reporting their results. FFO is intended to exclude GAAP historical cost depreciation and amortization of real estate and related assets, which assumes that the value of real estate diminishes ratably over time. Historically, however, real estate values have risen or fallen with market conditions. As a result, FFO provides a performance measure that, when compared year over year, reflects the impact to operations from trends in occupancy rates, rental rates, operating costs, development activities, interest costs and other matters without the inclusion of depreciation and amortization, providing a perspective that may not necessarily be apparent from net income.
The National Association of Real Estate Investment Trusts, or NAREIT, defines FFO as “net income (calculated in accordance with GAAP), excluding depreciation and amortization related to real estate, gains and losses from the sales of certain real estate assets, gains and losses from change in control and impairment write-downs of certain real estate assets and investments in entities when the impairment is directly attributable to decreases in the value of depreciable real estate held by the entity. The reconciling items include amounts to adjust earnings from consolidated partially-owned entities and equity in earnings of unconsolidated affiliates to FFO.” FFO does not represent cash generated from operating activities in accordance with GAAP and is not indicative of cash available to fund cash needs.
We present FFO available to common shareholders and unitholders - basic and also present FFO available to all equityholders and unitholders - diluted on a company-wide basis as if all securities that are convertible, at the holder's option, into our common shares, are converted at the beginning of the period. We also present Adjusted Company FFO available to all equityholders and unitholders - diluted, which adjusts FFO available to all equityholders and unitholders - diluted for certain items which we believe are not indicative of the operating results of our real estate portfolio. We believe this is an appropriate presentation as it is frequently requested by securities analysts, investors and other interested parties. Since others do not calculate these measures in a similar fashion, these measures may not be comparable to similarly titled measures as reported by others. These measures should not be considered as an alternative to net income as an indicator of our operating performance or as an alternative to cash flow as a measure of liquidity.
Adjusted Company FFO, NOI and the other non-GAAP financial measures are not equivalent to our net income or loss as determined in accordance with GAAP, and investors should consider GAAP measures to be more relevant to evaluating our operating performance. FFO, Adjusted Company FFO and NOI, and GAAP net income (loss) differ because FFO, Adjusted Company FFO and NOI exclude many items that are factored into GAAP net income or loss.
Because of the differences between FFO, Adjusted Company FFO, NOI and GAAP net income or loss, FFO, Adjusted Company FFO and NOI may not be accurate indicators of our operating performance, especially during periods in which we are acquiring and selling properties. In addition, FFO, Adjusted Company FFO and NOI are not necessarily indicative of cash flow available to fund cash needs and investors should not consider FFO, Adjusted Company FFO or NOI as alternatives to cash flows from operations, as an indication of our liquidity or as indicative of funds available to fund our cash needs, including our ability to make distributions to our shareholders.
Neither the SEC nor any other regulatory body has passed judgment on the acceptability of the adjustments that we use to calculate FFO, Adjusted Company FFO and NOI. Also, because not all companies calculate FFO, Adjusted Company FFO and NOI the same way, comparisons with other companies’ measures with similar titles may not be meaningful.
The following presents a reconciliation of net income attributable to common shareholders to FFO available to common shareholders and unitholders and Adjusted Company FFO available to all equityholders and unitholders for 2023 and 2022 (dollars in thousands, except share and per share amounts):
Years Ended December31,
2023 2022
FUNDS FROM OPERATIONS:
Basic and Diluted:
Net income attributable to common shareholders $ 23,863 $ 107,307
Adjustments:
Depreciation and amortization related to real estate 179,554 177,725
Impairment charges - real estate, including our share of non-consolidated entities 17,859 8,137
Noncontrolling interests - OP units (58) 156
Amortization of leasing commissions 3,970 2,842
Joint venture and noncontrolling interest adjustment 13,168 11,112
Gains on sales of properties, including our share of non-consolidated entities (38,796) (83,562)
FFO available to common shareholders and unitholders - basic 199,560 223,717
Preferred dividends 6,290 6,290
Amount allocated to participating securities 230 186
FFO available to all equityholders and unitholders - diluted 206,080 230,193
Selling profit from sales-type leases (1)
- (47,059)
Allowance for credit losses (32) 93
Transaction costs(2)
4 4,177
Debt satisfaction losses, net, including our share of non-consolidated entities 138 1,615
Other non-recurring costs(3)
- 2,573
Noncontrolling interest adjustments 1 1,469
Adjusted Company FFO available to all equityholders and unitholders - diluted
$ 206,191 $ 193,061
Per Common Share and Unit Amounts
Basic:
FFO
$ 0.69 $ 0.80
Diluted:
FFO
$ 0.70 $ 0.80
Adjusted Company FFO
$ 0.70 $ 0.67
Weighted-Average Common Shares:
Basic:
Weighted-average common shares outstanding - basic EPS
290,245,877 279,887,760
Operating partnership units(4)
820,386 853,259
Weighted-average common shares outstanding - basic FFO
291,066,263 280,741,019
Diluted:
Weighted-average common shares outstanding - diluted EPS
291,193,514 282,473,458
Unvested share-based payment awards
- 17,381
Preferred shares - Series C
4,710,570 4,710,570
Weighted-average common shares outstanding - diluted FFO
295,904,084 287,201,409
(1) Aggregate gains recognized upon entering into a sales-type lease and exercises of tenant's purchase options in leases.
(2) Includes initial direct costs incurred in connection with entering into investments classified as sales-type leases and other acquisition related costs.
(3) Includes strategic alternatives and costs related to shareholder activism.
(4) Includes OP units other than OP units held by us.

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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Item 7A. Quantitative and Qualitative Disclosure about Market Risk
Our exposure to market risk relates primarily to our variable-rate indebtedness not subject to interest rate swaps and our fixed-rate debt. Our consolidated aggregate principal variable-rate indebtedness was $129.1 million at December 31, 2023 and 2022, which represented 7.2% and 8.6%, respectively, of our aggregate principal consolidated indebtedness. During 2023 and 2022, our variable-rate indebtedness had a weighted-average interest rate of 6.8% and 3.5%, respectively. Had the weighted-average interest rate been 100 basis points higher, our interest expense for 2023 and 2022 would have increased by $1.7 million and $2.3 million, respectively. As of December 31, 2023 and 2022, our aggregate principal consolidated fixed-rate debt was $1.7 billion and $1.4 billion, respectively, which represented 92.8% and 91.4%, respectively, of our aggregate principal indebtedness.
For certain of our financial instruments, fair values are not readily available since there are no active trading markets as characterized by current exchanges between willing parties. Accordingly, we derive or estimate fair values using various valuation techniques, such as computing the present value of estimated future cash flows using discount rates commensurate with the risks involved. However, the determination of estimated cash flows may be subjective and imprecise. Changes in assumptions or estimation methodologies can have a material effect on these estimated fair values. The following fair value was determined using the interest rates that we believe our outstanding fixed-rate debt would warrant as of December 31, 2023 and is indicative of the interest rate environment as of December 31, 2023, and does not take into consideration the effects of subsequent interest rate fluctuations. Accordingly, we estimate that the fair value of our fixed-rate debt was $1.5 billion as of December 31, 2023.
Our interest rate risk objectives are to limit the impact of interest rate fluctuations on earnings and cash flows and to lower our overall borrowing costs. To achieve these objectives, we manage our exposure to fluctuations in market interest rates through the use of fixed-rate debt instruments to the extent that reasonably favorable rates are obtainable with such arrangements. We have historically entered into derivative financial instruments such as interest rate swaps or caps to mitigate our interest rate risk on a related financial instrument or to effectively lock the interest rate on a portion of our variable-rate debt. As of December 31, 2023, we had four interest rate swap agreements in our consolidated portfolio, all of which expire in January 2025.

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Item 8. Financial Statements and Supplementary Data
Financial Statements and Supplementary Data
Reports of Independent Registered Public Accounting Firm (PCAOB ID No. 34)
Consolidated Balance Sheets as of December 31, 2023 and December 31, 2022
Consolidated Statements of Operations for the years ended December 31, 2023, December 31, 2022 and December 31, 2021
Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 2023, December 31, 2022 and December 31, 2021
Consolidated Statements of Changes in Equity for the years ended December 31, 2023, December 31, 2022 and December 31, 2021
Consolidated Statements of Cash Flows for the years ended December 31, 2023, December 31, 2022 and December 31, 2021
Notes to Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Trustees of LXP Industrial Trust
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of LXP Industrial Trust and subsidiaries (the “Company”) as of December 31, 2023 and 2022, the related consolidated statements of operations, comprehensive income (loss), changes in equity, and cash flows, for each of the three years in the period ended December 31, 2023, and the related notes and the schedule listed in the Index at Item 15 (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2023, in conformity with accounting principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 15, 2024, expressed an unqualified opinion on the Company’s internal control over financial reporting.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Real Estate, net - Determination of Impairment Indicators and Impairment - Refer to Notes 2 and 5 of the financial statements
Critical Audit Matter Description
The Company’s evaluation of real estate assets for impairment involves an initial assessment of each real estate asset to determine whether events or changes in circumstances exist that indicate that the carrying value of real estate assets may no longer be recoverable. Possible indications of impairment may include increases in vacancy at a property, tenant financial instability, change in the estimated holding period of the asset, the potential sale or transfer of the property in the near future and changes in economic conditions. When such events or changes in circumstances exist, the Company evaluates its real estate assets for impairment by comparing anticipated future undiscounted cash flows expected to be derived from the asset to the respective carrying value. If the carrying value of an asset exceeds the undiscounted cash flows, an analysis is performed to determine the fair value of the asset. An asset is determined to be impaired if the asset's carrying value exceeds its estimated fair value.
The Company makes significant assumptions to estimate its holding period of an asset. Additionally, for those real estate assets where indications of impairment have been identified, the Company makes significant estimates and assumptions related to rental rates and capitalization rates included in the estimated future undiscounted cash flows and, as necessary, the discount rate
applied to determine fair value of the assets. Changes in these assumptions could have a significant impact on the identification of real estate assets for impairment, the estimated fair value of the asset, or the amount of any impairment charge recognized.
Auditing management’s assumptions requires evaluation of whether management appropriately identified impairment indicators relating to the assets’ estimated holding periods and whether management’s anticipated future undiscounted cash flows and estimated fair values are reasonable. Because of the subjectivity of these assumptions our audit procedures required a high degree of auditor judgment and an increased extent of effort, including the need to involve our fair value specialists.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures to evaluate management’s estimated holding period of an asset and to evaluate the assumptions used in undiscounted cash flows and fair value models included the following, among others:
•We tested the effectiveness of controls over management's evaluation of real estate assets for impairment, specifically over identification of possible events or changes in estimated holding period of an asset, controls over estimated rental rates and capitalization rates used in management’s anticipated future undiscounted cash flows, as well as controls over management selection and estimation of discount rates in estimating fair value of real estate assets.
• We evaluated the Company’s assessment of estimated holding periods by:
a.Comparing management’s previous holding period assumptions to the Company’s subsequent sale of an asset.
b.Discussing with accounting and operations management the Company’s intent regarding sale or holding onto the asset.
c.Evaluating the consistency of the assumptions used with obtained audit evidence in other audit areas.
d.Reading minutes of the executive committee and board of directors’ meetings to identify any indicators that a long-lived asset will likely be sold or otherwise disposed of before the end of its previously estimated useful life.
• We evaluated the Company’s determination of anticipated future undiscounted cash flows for those assets with impairment indicators and for which the fair value for those that the carrying value was determined not to be recoverable by performing the following:
a.With the assistance of our fair value specialists, we evaluated the reasonableness of the (1) valuation methodology; (2) significant assumptions made, including testing the source information underlying the determination of the discount rate, rental rates, capitalization rates and developing a range of independent estimates based on external market sources and comparing our estimates to the assumptions utilized by management; and (3) mathematical accuracy of the calculation.
/s/ Deloitte & Touche LLP
New York, New York
February 15, 2024
We have served as the Company's auditor since 2017.
Report of Independent Registered Public Accounting Firm
To the shareholders and the Board of Trustees of LXP Industrial Trust
Opinion on Internal Control over Financial Reporting
We have audited the internal control over financial reporting of LXP Industrial Trust and subsidiaries (the “Company”) as of December 31, 2023, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control - Integrated Framework (2013) issued by COSO.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended December 31, 2023, of the Company and our report dated February 15, 2024, expressed an unqualified opinion on those financial statements.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Deloitte & Touche LLP
New York, New York
February 15, 2024
LXP INDUSTRIAL TRUST AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
($000, except share and per share data)
As of December 31,
2023 2022
Assets:
Real estate, at cost $ 3,774,239 $ 3,691,066
Real estate - intangible assets 314,525 328,607
Land held for development 80,743 84,412
Investments in real estate under construction 319,355 361,924
Real estate, gross 4,488,862 4,466,009
Less: accumulated depreciation and amortization 904,709 800,470
Real estate, net
3,584,153 3,665,539
Assets held for sale
9,168 66,434
Right-of-use assets, net 19,342 23,986
Cash and cash equivalents 199,247 54,390
Restricted cash 216 116
Short-term investments 130,140 -
Investments in non-consolidated entities 48,495 58,206
Deferred expenses (net of accumulated amortization of $21,667 in 2023 and $20,348 in 2022)
35,008 25,207
Investment in a sales-type lease, net (allowance for credit loss of $61 in 2023 and $93 in 2022)
63,464 61,233
Rent receivable - current 5,327 3,030
Rent receivable - deferred 80,421 71,392
Other assets 17,794 24,314
Total assets $ 4,192,775 $ 4,053,847
Liabilities and Equity:
Liabilities:
Mortgages and notes payable, net $ 60,124 $ 72,103
Term loan payable, net 296,764 298,959
Senior notes payable, net 1,286,145 989,295
Trust preferred securities, net 127,794 127,694
Dividends payable 39,610 38,416
Liabilities held for sale 417 1,150
Operating lease liabilities 20,233 25,118
Accounts payable and other liabilities 57,981 74,261
Accrued interest payable 11,379 9,181
Deferred revenue - including below market leases (net of accumulated accretion of $17,259 in 2023 and $15,430 in 2022)
9,428 11,452
Prepaid rent 17,443 15,215
Total liabilities 1,927,318 1,662,844
Commitments and contingencies
Equity:
Preferred shares, par value $0.0001 per share; authorized 100,000,000 shares,
Series C Cumulative Convertible Preferred, liquidation preference $96,770 and 1,935,400 shares issued and outstanding
94,016 94,016
Common shares, par value $0.0001 per share; authorized 600,000,000 shares, 293,449,088 and 291,719,310 shares issued and outstanding in 2023 and 2022, respectively
29 29
Additional paid-in-capital 3,330,383 3,320,087
Accumulated distributions in excess of net income (1,201,824) (1,079,087)
Accumulated other comprehensive income 9,483 17,689
Total shareholders’ equity 2,232,087 2,352,734
Noncontrolling interests 33,370 38,269
Total equity 2,265,457 2,391,003
Total liabilities and equity $ 4,192,775 $ 4,053,847
The accompanying notes are an integral part of these consolidated financial statements.
LXP INDUSTRIAL TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
($000, except share and per share data)
Years ended December 31,
2023 2022 2021
Gross revenues:
Rental revenue $ 334,220 $ 313,992 $ 339,944
Other revenue 6,283 7,253 4,053
Total gross revenues 340,503 321,245 343,997
Expense applicable to revenues:
Depreciation and amortization (183,524) (180,567) (176,714)
Property operating (58,394) (54,870) (47,314)
General and administrative (36,334) (38,714) (35,458)
Transaction costs (4) (4,177) (432)
Non-operating income 2,982 935 1,364
Interest and amortization expense (46,389) (45,417) (46,708)
Debt satisfaction losses, net (132) (119) (13,894)
Impairment charges (16,490) (3,037) (5,541)
Change in allowance for credit loss 32 (93) -
Gains on sales of properties 33,010 59,094 367,274
Selling profit from sales-type leases - 47,059 -
Income before provision for income taxes and equity in earnings (losses) of non-consolidated entities 35,260 101,339 386,574
Provision for income taxes (703) (1,102) (1,293)
Equity in earnings (losses) of non-consolidated entities 1,366 16,006 (190)
Net income 35,923 116,243 385,091
Less net income attributable to noncontrolling interests (5,540) (2,460) (2,443)
Net income attributable to LXP Industrial Trust shareholders 30,383 113,783 382,648
Dividends attributable to preferred shares - Series C (6,290) (6,290) (6,290)
Allocation to participating securities (230) (186) (510)
Net income attributable to common shareholders $ 23,863 $ 107,307 $ 375,848
Net income attributable to common shareholders - per common share basic
$ 0.08 $ 0.38 $ 1.35
Weighted-average common shares outstanding - basic
290,245,877 279,887,760 277,640,835
Net income attributable to common shareholders - per common share diluted
$ 0.08 $ 0.38 $ 1.34
Weighted-average common shares outstanding - diluted 291,193,514 282,473,458 287,369,742
The accompanying notes are an integral part of these consolidated financial statements.
LXP INDUSTRIAL TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
($000)
Years ended December 31,
2023 2022 2021
Net income $ 35,923 $ 116,243 $ 385,091
Other comprehensive income (loss):
Change in unrealized income (loss) on interest rate swaps, net (6,847) 22,576 11,705
Company's share of other comprehensive income (loss) of non-consolidated entities (1,359) 1,371 -
Other comprehensive income (loss) (8,206) 23,947 11,705
Comprehensive income 27,717 140,190 396,796
Comprehensive income attributable to noncontrolling interests
(5,540) (2,460) (2,443)
Comprehensive income attributable to LXP Industrial Trust shareholders $ 22,177 $ 137,730 $ 394,353
The accompanying notes are an integral part of these consolidated financial statements.
LXP INDUSTRIAL TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
($000 except share amounts)
Year ended December 31, 2023
LXP Industrial Trust Shareholders
Total Number of Preferred Shares Preferred Shares Number of Common Shares Common Shares Additional Paid-in-Capital Accumulated Distributions in Excess of Net Income Accumulated Other Comprehensive Income/(Loss) Noncontrolling Interests
Balance December 31, 2022 $ 2,391,003 1,935,400 $ 94,016 291,719,310 $ 29 $ 3,320,087 $ (1,079,087) $ 17,689 $ 38,269
Issuance of partnership interest in real estate 714 - - - - - - - 714
Redemption of noncontrolling OP units for common shares (415) - - 832,571 - 3,393 - - (3,808)
Issuance of common shares and deferred compensation amortization, net 8,979 - - 1,286,648 - 8,979 - - -
Repurchase of common shares to settle tax obligations (2,076) - - (204,780) - (2,076) - - -
Forfeiture of employee common shares 5 - - (184,661) - - 5 - -
Dividends/distributions ($0.505 per common share)
(160,470) - - - - - (153,125) - (7,345)
Net income 35,923 - - - - - 30,383 - 5,540
Other comprehensive loss (6,847) - - - - - - (6,847) -
Company's share of other comprehensive loss of non-consolidated entities (1,359) - - - - - - (1,359) -
Balance December 31, 2023 $ 2,265,457 1,935,400 $ 94,016 293,449,088 $ 29 $ 3,330,383 $ (1,201,824) $ 9,483 $ 33,370
The accompanying notes are an integral part of the consolidated financial statements.
LXP INDUSTRIAL TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
($000 except share amounts)
Year ended December 31, 2022
LXP Industrial Trust Shareholders
Total Number of Preferred Shares Preferred Shares Number of Common Shares Common Shares Additional Paid-in-Capital Accumulated Distributions in Excess of Net Income Accumulated Other Comprehensive Income/(Loss) Noncontrolling Interests
Balance December 31, 2021 $ 2,323,228 1,935,400 $ 94,016 283,752,726 $ 28 $ 3,252,506 $ (1,049,434) $ (6,258) $ 32,370
Issuance of partnership interest in real estate
7,814 - - - - - - - 7,814
Redemption of noncontrolling OP units for common shares
- - - 39,747 - 211 - - (211)
Purchase of noncontrolling interest in consolidated joint venture (27,958) - - - - (25,058) - - (2,900)
Issuance of common shares and deferred compensation amortization, net
229,390 - - 20,580,816 2 229,388 - - -
Repurchase of common shares (130,676) (12,102,074) (1) (130,675) - - -
Repurchase of common shares to settle tax obligations
(6,285) - - (410,958) - (6,285) - - -
Forfeiture of employee common shares
16 - - (140,947) - - 16 - -
Dividends/distributions ($0.485 per common share)
(144,716) - - - - - (143,452) - (1,264)
Net income 116,243 - - - - - 113,783 - 2,460
Other comprehensive income 22,576 - - - - - - 22,576 -
Company's share of other comprehensive income of non-consolidated entities 1,371 - - - - - - 1,371 -
Balance December 31, 2022 $ 2,391,003 1,935,400 $ 94,016 291,719,310 $ 29 $ 3,320,087 $ (1,079,087) $ 17,689 $ 38,269
The accompanying notes are an integral part of the consolidated financial statements.
LXP INDUSTRIAL TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
($000 except share amounts)
Year ended December 31, 2021
LXP Industrial Trust Shareholders
Total Number of Preferred Shares Preferred Shares Number of Common Shares Common Shares Additional Paid-in-Capital Accumulated Distributions in Excess of Net Income Accumulated Other Comprehensive Loss Noncontrolling Interests
Balance December 31, 2020 $ 1,991,137 1,935,400 $ 94,016 277,152,450 $ 28 $ 3,196,315 $ (1,301,726) $ (17,963) $ 20,467
Issuance of partnership interest in real estate
21,901 - - - - - - - 21,901
Redemption of noncontrolling OP units for common shares
- - - 185,270 - 958 - - (958)
Redemption of noncontrolling OP units for real estate (22,305) - - - - (12,919) - - (9,386)
Issuance of common shares and deferred compensation amortization, net
73,851 - - 6,993,194 - 73,851 - - -
Repurchase of common shares to settle tax obligations
(6,134) - - (567,924) - (6,134) - - -
Forfeiture of employee common shares
2 - - (10,264) - - 2 - -
Dividends/distributions ($0.4425 per common share)
(132,020) - - - - - (130,358) - (1,662)
Net income 385,091 - - - - - 382,648 - 2,443
Other comprehensive income 11,705 - - - - - - 11,705 -
Reallocation of noncontrolling interests - - - - - 435 - - (435)
Balance December 31, 2021 $ 2,323,228 1,935,400 $ 94,016 283,752,726 $ 28 $ 3,252,506 $ (1,049,434) $ (6,258) $ 32,370
The accompanying notes are an integral part of the consolidated financial statements
LXP INDUSTRIAL TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
($000)
Years ended December 31,
2023 2022 2021
Cash flows from operating activities:
Net income $ 35,923 $ 116,243 $ 385,091
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization
186,540 183,419 179,523
Gains on sales of properties
(33,010) (59,094) (367,274)
Change in allowance for credit loss (32) 93 -
Selling profit from sales-type leases - (47,059) -
Debt satisfaction (gains) losses, net 132 119 13,894
Impairment charges 16,490 3,037 5,541
Straight-line rents
(9,471) (11,363) (12,275)
Amortization of right of use assets
4,136 3,980 3,726
Other non-cash expense, net 5,900 6,072 6,734
Equity in (earnings) losses of non-consolidated entities
(1,366) (16,006) 190
Distributions of accumulated earnings from non-consolidated entities
4,614 17,024 -
Changes in assets and liabilities
Change in accounts payable and other liabilities: 4,407 (1,574) 7,996
Change in rent receivable and prepaid rent, net
(488) 623 1,058
Change in accrued interest payable
2,199 700 2,138
Other adjustments, net
(6,528) (1,945) (5,996)
Net cash provided by operating activities 209,446 194,269 220,346
Cash flows from investing activities:
Acquisition of real estate, including intangible assets (15,018) (132,026) (758,371)
Investment in real estate under construction (120,793) (276,706) (288,519)
Capital expenditures (17,937) (32,562) (15,207)
Net proceeds from sale of properties 97,758 194,472 728,360
Investment in loans receivable - - (1,497)
Principal payments on loans receivable 1,462 27 8
Investments in non-consolidated entities, net (3,648) (3,225) (4,533)
Distributions from non-consolidated entities in excess of accumulated earnings 10,009 19,930 8,347
Payments of deferred leasing costs (6,151) (5,156) (7,297)
Investment in held-to-maturity securities (130,000) - -
Change in real estate deposits, net 867 (1,673) 947
Net cash used in investing activities (183,451) (236,919) (337,762)
Cash flows from financing activities:
Dividends to common and preferred shareholders (151,932) (142,461) (128,334)
Principal amortization payments (12,265) (11,275) (13,552)
Principal payments on debt, excluding normal amortization - - (14,581)
Proceeds of mortgages and notes payable - - 11,610
Revolving credit facility borrowings 125,000 280,000 555,000
Revolving credit facility payments (125,000) (280,000) (555,000)
Proceeds from issuance of senior notes 298,269 - 399,032
Repurchase of senior notes - - (188,756)
Payments for early extinguishment of debt - - (12,664)
Deferred financing costs (5,818) (3,626) (3,977)
Cash distributions to noncontrolling interests (7,345) (1,264) (1,662)
Cash contributions from noncontrolling interests 714 7,814 21,411
Repurchase of common shares - (130,675) -
Purchase of noncontrolling interest - (27,958) -
Issuance of common shares, net of costs and repurchases to settle tax obligations (2,661) 215,574 60,575
Net cash provided by (used in) financing activities 118,962 (93,871) 129,102
Change in cash, cash equivalents and restricted cash 144,957 (136,521) 11,686
Less restricted cash classified as held for sale - - (80)
Cash, cash equivalents and restricted cash, at beginning of year 54,506 191,027 179,421
Cash, cash equivalents and restricted cash, at end of year $ 199,463 $ 54,506 $ 191,027
The accompanying notes are an integral part of these consolidated financial statements.
LXP INDUSTRIAL TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($000, except share/unit data)
(1) The Company and Financial Statement Presentation
LXP Industrial Trust (together with its consolidated subsidiaries, except when the context only applies to the parent entity, the “Company”) is a Maryland real estate investment trust (“REIT”) that owns a portfolio of equity investments focused on single-tenant industrial properties.
As of December 31, 2023, the Company had ownership interests in approximately 115 consolidated properties located in 18 states. The properties in which the Company has an interest are primarily net leased to tenants in various industries.
The Company believes it has qualified as a REIT under the Internal Revenue Code of 1986, as amended (the “Code”). Accordingly, the Company will not be subject to federal income tax, provided that distributions to its shareholders equal at least the amount of its REIT taxable income as defined under the Code. The Company is permitted to participate in certain activities from which it was previously precluded in order to maintain its qualification as a REIT, so long as these activities are conducted in entities which elect to be treated as taxable REIT subsidiaries (“TRS”) under the Code. As such, the TRS are subject to federal income taxes on the income from these activities.
The Company conducts its operations indirectly through (1) property owner subsidiaries, which are single purpose entities, (2) a wholly-owned TRS, Lexington Realty Advisors, Inc. (“LRA”), and (3) joint ventures. Property owner subsidiaries are landlords under leases for properties in which the Company has an interest and/or borrowers under loan agreements secured by properties in which the Company has an interest and lender subsidiaries are lenders under loan agreements where the Company made an investment in a loan asset, but in all cases are separate and distinct legal entities. Each property owner subsidiary is a separate legal entity that maintains separate books and records. The assets and credit of each property owner subsidiary with a property subject to a mortgage loan are not available to creditors to satisfy the debt and other obligations of any other person, including any other property owner subsidiary or any other affiliate. Consolidated entities that are not property owner subsidiaries do not directly own any of the assets of a property owner subsidiary (or the general partner, member or managing member of such property owner subsidiary), but merely hold partnership, membership or beneficial interests therein, which interests are subordinate to the claims of such property owner subsidiary's (or its general partner's, member's or managing member's) creditors.
(2)Summary of Significant Accounting Policies
Basis of Presentation and Consolidation. The Company's consolidated financial statements are prepared on the accrual basis of accounting in accordance with U.S. generally accepted accounting principles (“GAAP”). The financial statements reflect the accounts of the Company and its consolidated subsidiaries. The Company consolidates wholly-owned subsidiaries, partnerships and joint ventures which it controls (i) through voting rights or similar rights or (ii) by means other than voting rights if the Company is the primary beneficiary of a variable interest entity (“VIE”). Entities which the Company does not control and entities which are VIEs in which the Company is not a primary beneficiary are accounted for under appropriate GAAP.
As of December 31, 2023, the Company had interests in seven consolidated joint ventures with developers, consisting of five development projects and two land joint ventures, with ownership interests ranging from 80% to 95.5%. Each joint venture owns land parcels with the intention of developing industrial properties. The Company determined that the joint ventures are variable interest entities in accordance with the applicable accounting guidance. The Company concluded that it is the primary beneficiary in each of the joint ventures and as such, the joint ventures' operations are consolidated in the Company's consolidated financial statements.
In addition, the Company is the primary beneficiary of certain other VIEs as it has a controlling financial interest in these entities. In 2023, the Company purchased the remaining 0.925% noncontrolling interest owned by Lepercq Corporate Income Fund L.P. (“LCIF”) partnership unit holders. Prior to the merger on December 31, 2023, there were 730,623.5 LCIF operating partnership (“OP”) units which were multiplied by a 1.126 redemption factor, resulting in 822,627 common shares being issued for $9.47 per share, a total value of approximately $7,800. As the Company previously consolidated LCIF, the acquisition of the noncontrolling ownership interest was recorded as an equity transaction with the carrying balance of noncontrolling interest, net of transaction costs, of $3,344 recorded as additional paid-in-capital. There were no LCIF OP units outstanding after the transaction.
LXP INDUSTRIAL TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($000, except share/unit data)
The assets of each VIE are only available to satisfy such VIE's respective liabilities. Below is a summary of selected financial data of consolidated VIEs for which the Company is the primary beneficiary included in the consolidated balance sheets as of December 31, 2023 and 2022:
December 31, 2023 December 31, 2022
Real estate, net $ 535,118 $ 1,027,009
Total assets $ 626,442 $ 1,125,558
Total liabilities $ 19,549 $ 40,200
In addition, the Company acquires, from time to time, properties using a reverse like-kind exchange structure pursuant to Section 1031 of the Internal Revenue Code (a “reverse 1031 exchange”) and, as such, the properties are in the possession of an Exchange Accommodation Titleholder (“EAT”) until the reverse 1031 exchange is completed. The EAT is classified as a VIE as it is a “thinly capitalized” entity. The Company consolidates the EAT because it is the primary beneficiary as it has the ability to control the activities that most significantly impact the EAT's economic performance and can collapse the 1031 exchange structure at any time. The assets of the EAT primarily consist of leased property (net real estate and intangibles).
Revenue Recognition. The Company recognizes operating lease revenue on a straight-line basis over the term of the lease unless another systematic and rational basis is more representative of the time pattern in which the use benefit is derived from the leased property. Revenue is recognized on a contractual basis for leases with escalations tied to a consumer price index with no floor. The Company evaluates the collectability of its rental payments and recognizes revenue on a cash basis when the Company believes it is no longer probable that it will receive substantially all of the remaining lease payments. Renewal options in leases are excluded from the calculation of straight-line rent if the renewals are not reasonably certain. If the Company funds tenant improvements and the improvements are deemed to be owned by the Company, revenue recognition will commence when the improvements are substantially completed and possession or control of the space is turned over to the tenant. If the Company determines that the tenant allowances are lease incentives, the Company commences revenue recognition when possession or control of the space is turned over to the tenant for tenant work to begin. The lease incentive is recorded as a deferred expense and amortized as a reduction of revenue on a straight-line basis over the respective lease term. The Company recognizes lease termination fees as rental revenue in the period received and writes off unamortized lease-related intangible and other lease-related account balances, provided there are no further Company obligations under the lease. Otherwise, such fees and balances are recognized on a straight-line basis over the remaining obligation period with the termination payments being recorded as a component of rent receivable-deferred on the consolidated balance sheets. Sales-type lease income is recognized on an effective interest rate basis at a constant rate of return over the term of the applicable leases using the rate implicit in the leases. The investment in a sales-type lease balance is increased every period to reflect income on the net investment in the lease and reduced by the amount of lease payments collected during the period.
Earnings Per Share. Basic net income (loss) per share is computed under the two-class method by dividing net income (loss) reduced by preferred dividends and amounts allocated to certain non-vested share-based payment awards, if applicable, by the weighted-average number of common shares outstanding during the period. Diluted net income (loss) per share amounts are similarly computed but include the effect, when dilutive, of in-the-money common share options and non-vested common shares, unsettled common shares sold in forward sales transactions, OP units and put options of certain convertible securities.
LXP INDUSTRIAL TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($000, except share/unit data)
Use of Estimates. Management has made a number of significant estimates and assumptions relating to the reporting of assets and liabilities, the disclosure of contingent assets and liabilities and the reported amounts of revenues and expenses to prepare these consolidated financial statements in conformity with GAAP. These estimates and assumptions are based on management's best estimates and judgment. Management evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors, including the current economic environment. Management adjusts such estimates when facts and circumstances dictate. The most significant estimates made include the recoverability of current and deferred accounts receivable, allocation of property purchase price to tangible and intangible assets acquired and liabilities assumed, the determination of VIEs and which entities should be consolidated, the determination of impairment of long-lived assets and equity method investments, valuation of derivative financial instruments, valuation of awards granted under compensation plans, the determination of the incremental borrowing rate for leases where the Company is the lessee, the determination of the term and fair value of sales-type leases, the estimate of credit losses for investments in sales-type leases and the useful lives of long-lived assets. Actual results could differ materially from those estimates.
Acquisition of Real Estate. The fair value of the real estate acquired, which includes the impact of fair value adjustments for assumed mortgage debt related to property acquisitions, is allocated to the acquired tangible assets, consisting of land, building and improvements and identified intangible assets and liabilities, consisting of the value of above-market and below-market leases, other value of in-place leases and value of tenant relationships, based in each case on their fair values. The Company's acquisitions are primarily considered asset acquisitions, thus acquisition costs are capitalized.
The fair value of the tangible assets of an acquired property (which includes land, building and improvements and fixtures and equipment) is determined by valuing the property as if it were vacant. The “as-if-vacant” value is then allocated to land and building and improvements based on management's determination of relative fair values of these assets. Factors considered by management in performing these analyses include an estimate of carrying costs during the expected lease-up periods considering current market conditions and costs to execute similar leases. In estimating carrying costs, management includes real estate taxes, insurance and other operating expenses and estimates of lost rental revenue during the expected lease-up periods based on current market demand. Management also estimates costs to execute similar leases including leasing commissions. Management generally retains a third party to assist in the allocations.
In allocating the fair value of the identified intangible assets and liabilities of an acquired property, above-market and below-market lease values are recorded based on the difference between the current in-place lease rent and management's estimate of current market rents. Below-market lease intangibles are recorded as part of deferred revenue and amortized into rental revenue over the non-cancelable periods and bargain renewal periods of the respective leases. Above-market leases are recorded as part of intangible assets and amortized as a direct charge against rental revenue over the non-cancelable portion of the respective leases.
The aggregate value of other acquired intangible assets, consisting of in-place leases and tenant relationship values, is measured based on the lease revenue and market value of lease up costs avoided as a result of having an in-place lease on the acquisition date. This aggregate value is allocated between in-place lease values and tenant relationship values based on management's evaluation of the specific characteristics of each tenant's lease. The value of in-place leases is amortized to expense over the remaining non-cancelable periods and any bargain renewal periods of the respective leases. The value of tenant relationships is amortized to expense over the applicable lease term plus expected renewal periods.
Depreciation is determined by the straight-line method over the remaining estimated economic useful lives of the properties. The Company generally depreciates its real estate assets over periods ranging up to 40 years.
Impairment of Real Estate. The Company evaluates the carrying value of all tangible and intangible real estate assets held for investment for possible impairment when an event or change in circumstance has occurred that indicates its carrying value may not be recoverable. The Company considers the strategic decisions regarding the future plans to sell properties and other market factors. The Company regularly updates significant estimates and assumptions including rental rates, capitalization rates and discount rates, which are included in the anticipated future undiscounted cash flows derived from the asset. If such cash flows are less than the asset's carrying value, an impairment charge is recognized to the extent by which the asset's carrying value exceeds its estimated fair value, which may be below the balance of any non-recourse financing. Estimating future cash flows and fair values is highly subjective and such estimates could differ materially from actual results.
LXP INDUSTRIAL TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($000, except share/unit data)
Investments in Non-Consolidated Entities. The Company uses the equity method of accounting for those joint ventures where it exercises significant influence but does not have control. If the Company's investment in the entity is insignificant and the Company has no influence over the control of the entity then the entity is accounted for under the cost method.
Impairment of Equity Method Investments. The Company assesses whether there are indicators that the value of its equity method investments may be impaired. An impairment charge is recognized only if the Company determines that a decline in the value of the investment below its carrying value is other-than-temporary. The assessment of impairment is highly subjective and involves the application of significant assumptions and judgments about the Company's intent and ability to recover its investment given the nature and operations of the underlying investment, including the level of the Company's involvement therein, among other factors. To the extent an impairment is deemed to be other-than-temporary, the loss is measured as the excess of the carrying amount of the investment over the estimated fair value of the investment.
Fair Value Measurements. The Company follows the guidance in the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 820, Fair Value Measurements and Disclosures (“Topic 820”), to determine the fair value of financial and non-financial instruments. Topic 820 defines fair value, establishes a framework for measuring fair value in GAAP and expands disclosures about fair value measurements. Topic 820 establishes a fair value hierarchy that prioritizes observable and unobservable inputs used to measure fair value into three levels: Level 1 - quoted prices (unadjusted) in active markets that are accessible at the measurement date for assets or liabilities; Level 2 - observable prices that are based on inputs not quoted in active markets, but corroborated by market data; and Level 3 - unobservable inputs, which are used when little or no market data is available. The fair value hierarchy gives the highest priority to Level 1 inputs and the lowest priority to Level 3 inputs. In determining fair value, the Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible, as well as considering counterparty credit risk. The Company has formally elected to apply the portfolio exception within Topic 820 with respect to measuring counterparty risk for all of its derivative transactions subject to master netting arrangements.
The Company estimates the fair value of its real estate assets, including non-consolidated real estate assets, by using income and market valuation techniques. The Company may estimate fair values using market information such as recent sale contracts (Level 2 inputs) or recent sale offers or discounted cash flow models, which primarily rely on Level 3 inputs. The cash flow models include estimated cash inflows and outflows over a specified holding period. These cash flows may include contractual rental revenues, projected future rental revenues and expenses and forecasted tenant improvements and lease commissions based upon market conditions determined through discussion with local real estate professionals, experience the Company has with its other owned properties in such markets and expectations for growth. Capitalization rates and discount rates utilized in these models are estimated by management based upon rates that management believes to be within a reasonable range of current market rates for the respective properties based upon an analysis of factors such as property and tenant quality, geographical location and local supply and demand observations. To the extent the Company under-estimates forecasted cash out flows (tenant improvements, lease commissions and operating costs) or over-estimates forecasted cash inflows (rental revenue rates), the estimated fair value of its real estate assets could be overstated.
Cost Capitalization. The Company capitalizes direct and indirect project costs associated with construction of a property or improvements, including interest and compensation costs of employees directly contributing to the completion of each construction project, up to the time the property is substantially complete and ready for its intended use. These costs are included within investments in real estate under construction for development projects and in construction in progress within real estate, at cost for improvements in the consolidated balance sheets. If activities and costs incurred to ready the vacant space cease, then cost capitalization is also discontinued until such activities are resumed. Once construction is substantially complete on a vacant space and it is ready for its intended use, costs are no longer capitalized. The Company will reclassify a development project to real estate, at cost from investments in real estate under construction once in service upon stabilization. The Company considers stabilization to occur upon the earlier of 90% occupancy of the property or one-year from cessation of major construction activities. If some portions of a development project are substantially complete and ready for use and other portions have not yet reached that stage, we cease capitalizing costs on the completed portion of the project but continue to capitalize costs for the incomplete portion. When a portion of the development project is substantially complete and ready for its intended use, the project is placed into service and depreciation commences.
LXP INDUSTRIAL TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($000, except share/unit data)
Properties Held For Sale. Assets and liabilities of properties that meet various held for sale criteria, including whether it is probable that a sale will occur within 12 months, are presented separately in the consolidated balance sheets. Properties are held for sale for a period longer than 12 months if events or circumstances out of the Company's control occur that delay the sale and while management continues to be committed to the plan of sale and is performing actions necessary to respond to the conditions causing the delay the properties held for sale remain salable in their current condition. The operating results of these properties are reflected as discontinued operations in the consolidated statements of operations only if the sale of these assets represents a major strategic shift in operations; if not, the operating results are included in continuing operations. Properties classified as held for sale are carried at the lower of net carrying value or estimated fair value less costs to sell and depreciation and amortization are no longer recognized. Held for sale properties are evaluated quarterly to ensure that properties continue to meet the held for sale criteria. If properties are required to be reclassified from held for sale to held for use due to changes to a plan of sale, they are recorded at the lower of fair value or the carrying amount before the property was classified as held for sale, adjusted for any depreciation and amortization expense that would have been recognized had the property been continuously classified as held and used. Properties that do not meet the held for sale criteria are accounted for as operating properties.
Deferred Expenses. Deferred expenses consist primarily of revolving line of credit debt and leasing costs. Debt costs are amortized using the straight-line method, which approximates the interest method, over the terms of the debt instruments and leasing costs are amortized over the term of the related lease.
Investment in Sales-Type Leases. Investments in sales-type leases are accounted for under ASC 842 “Leases” (“ASC 842”). Upon lease commencement or lease modification, the Company assesses lease classification to determine whether the lease should be classified as a direct financing, sales-type or operating lease. As required by ASC 842, the Company separately assesses the land and building components of the property to determine the classification of each component unless the effect of separately accounting for the land component will be insignificant. If the lease is determined to be a direct financing or sales-type lease, the Company records a net investment in the lease, which is equal to the sum of the lease receivable and the unguaranteed residual asset, discounted at the rate implicit in the lease. Any difference between the fair value of the asset and the net investment in the lease is considered selling profit or loss and is either recognized upon execution of the lease or deferred and recognized over the life of the lease, depending on the lease classification and the collectability of the minimum lease payments. Initial direct costs are recognized as an expense if, at the commencement date, the fair value of the underlying asset is different from its carrying amount. If the fair value of the underlying asset equals its carrying amount, initial direct costs are deferred at the commencement date and included in the measurement of the net investment in the lease.
Allowance for Credit Losses. On January 1, 2020, the Company adopted ASC 326 “Financial Instruments-Credit Losses” (“ASC 326” or “CECL”), which requires that the Company measures and records current expected credit losses for its investments, the scope of which includes investment in sales-type leases in its consolidated balance sheets.
The Company has elected to use a discounted cash flow model to estimate the allowance for credit losses. This model requires us to develop cash flows which is used to project estimated credit losses over the life of the lease and discount these cash flows at the asset’s effective interest rate. The Company then records an allowance equal to the difference between the amortized cost basis of the asset and the present value of the expected credit loss cash flows.
Expected losses within the Company's cash flows are determined by estimating the probability of default of the tenant and their parent guarantors over the term of the lease. The Company evaluates the collectability of its investment in sales-type leases, net based various probability weighted default scenarios that include, but are not limited to, current payment status, the financial strength of its tenant and its parent guarantors, current economic conditions and 20 years of historical information on corporate defaults. The Company is unable to use its historical data to estimate losses as it has no relevant loss history to date.
The allowance is recorded as a reduction to our investment in sales-type leases, net, on the consolidated balance sheets. The Company is required to update its allowance on a quarterly basis with the resulting change being recorded in the consolidated statement of operations for the relevant period. The Company regularly evaluates the extent and impact of any credit deterioration that could affect performance and the value its investment in sales-type leases, as well as the financial and operating capability of the tenant. The Company also evaluates the tenant’s competency in managing and operating the secured property and considers the overall economic environment, real estate sector and geographic sub-market in which the secured property is located. If a tenant's credit deteriorates and it defaults under the terms of the sales-type lease, the Company puts the lease in non-accrual status until it is determined that all payments under the lease
LXP INDUSTRIAL TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($000, except share/unit data)
are probable of being collected. Write-offs are deducted from the allowance in the period in which they are deemed uncollectible. Recoveries previously written off are recorded when received.
Derivative Financial Instruments. The Company accounts for its interest rate swap agreements in accordance with FASB ASC Topic 815, Derivatives and Hedging (“Topic 815”). In accordance with Topic 815, these agreements are carried on the balance sheet at their respective fair values, as an asset if fair value is positive, or as a liability if fair value is negative. If the interest rate swap is designated as a cash flow hedge, the portion of the interest rate swap's change in fair value is reported as a component of other comprehensive income (loss). The Company also accounts for its share of cash flow hedges from non-consolidated entities as part of investment in non-consolidated entities and accumulated other comprehensive income (loss).
Upon entering into hedging transactions, the Company documents the relationship between the interest rate swap agreement and the hedged item. The Company also documents its risk-management policies, including objectives and strategies, as they relate to its hedging activities. The Company assesses, both at inception of a hedge and on an ongoing basis, whether or not the hedge is highly effective. The Company will discontinue hedge accounting on a prospective basis with changes in the estimated fair value reflected in earnings when (1) it is determined that the derivative is no longer effective in offsetting cash flows of a hedged item (including forecasted transactions), (2) it is no longer probable that the forecasted transaction will occur or (3) it is determined that designating the derivative as an interest rate swap is no longer appropriate. The Company does and may continue to utilize interest rate swap and cap agreements to manage interest rate risk, but does not anticipate entering into derivative transactions for speculative trading purposes.
Stock Compensation. The Company maintains an equity participation plan. Non-vested share grants generally vest either based upon (1) time, (2) performance and/or (3) market conditions. All share-based payments to employees are recognized in the consolidated statements of operations based on their fair values. The Company has made an accounting policy election to account for share-based award forfeitures in compensation costs when they occur.
Tax Status. The Company has made an election to qualify, and believes it is operating so as to qualify, as a REIT for federal income tax purposes. Accordingly, the Company generally will not be subject to federal income tax, provided that distributions to its shareholders equal at least the amount of its REIT taxable income as defined under Sections 856 through 860 of the Code.
The Company is permitted to participate in certain activities from which it was previously precluded in order to maintain its qualification as a REIT, so long as these activities are conducted in entities which elect to be treated as taxable REIT subsidiaries under the Code. As such, the Company is subject to federal and state income taxes on the income from these activities.
Income taxes, primarily related to the Company's taxable REIT subsidiaries, are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis and operating loss and tax credit carry-forwards. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled.
Cash and Cash Equivalents. The Company considers all highly liquid instruments with maturities of three months or less from the date of purchase to be cash equivalents.
Restricted Cash. Restricted cash is comprised primarily of cash balances held by lenders.
Short-Term Investments. Short-term investments classified as held-to-maturity securities consist of term deposits and treasury bills that the Company has the ability and intent to hold to maturity. These short-term investments have an original maturity of greater than three months but less than 12 months and are recorded in short-term investments in the consolidated balance sheet. Held-to-maturity securities are recorded at amortized cost, which approximates fair value. The estimate of expected losses considers historical credit loss information that is adjusted for current conditions and reasonable and supportable forecasts. We do not measure expected credit losses on held-to-maturity securities in which historical credit loss information adjusted for current conditions and reasonable and supportable forecasts results in an expectation that nonpayment of the amortized cost basis is zero.
LXP INDUSTRIAL TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($000, except share/unit data)
Environmental Matters. Under various federal, state and local environmental laws, statutes, ordinances, rules and regulations, an owner of real property may be liable for the costs of removal or remediation of certain hazardous or toxic substances at, on, in or under such property as well as certain other potential costs relating to hazardous or toxic substances. These liabilities may include government fines, penalties and damages for injuries to persons and adjacent property. Such laws often impose liability without regard to whether the owner knew of, or was responsible for, the presence or disposal of such substances. Although most of the tenants of properties in which the Company has an interest are primarily responsible for any environmental damage and claims related to the leased premises, in the event of the bankruptcy or inability of the tenant of such premises to satisfy any obligations with respect to such environmental liability, or if the tenant is not responsible, the Company's property owner subsidiary may be required to satisfy any such obligations, should they exist. In addition, the property owner subsidiary, as the owner of such a property, may be held directly liable for any such damages or claims irrespective of the provisions of any lease. As of December 31, 2023, the Company was not aware of any environmental matter relating to any of its investments that would have a material impact on the consolidated financial statements.
Segment Reporting. The Company operates generally in one industry segment, single-tenant real estate assets.
Reclassifications. Certain amounts included in prior years' financial statements have been reclassified to conform to the current year's presentation.
Recently Issued Accounting Guidance. In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848). ASU 2020-04 contains practical expedients for reference rate reform related activities that impact debt, leases, derivatives and other contracts that reference the London Interbank Offered Rate, or LIBOR, or another reference rate expected to be discontinued because of reference rate reform. The guidance in ASU 2020-04 is optional, applies for a limited period of time to ease the potential burden in accounting for (or recognizing the effect of) reference rate reform on financial reporting, in response to concerns about structural risks of interbank offered rates, and, particularly, the risk of cessation of LIBOR and may be elected over time as reference rate reform activities occur. As of March 31, 2020, the Company has elected to apply the hedge accounting expedients related to probability and the assessments of effectiveness for future LIBOR-indexed cash flows to assume that the index upon which future hedged transactions will be based matches the index on the corresponding derivatives. Application of these expedients preserves the presentation of derivatives consistent with past presentation.
On July 5, 2022, the Company transitioned its benchmark interest rate for its term loan from LIBOR to the Secured Overnight Financing Rate, or SOFR. The Company adopted ASU 2020-04 and the adoption of this standard did not have an impact on the Company's consolidated financial statements. During 2023, the Company's Trust Preferred Securities transitioned from LIBOR to SOFR. The impact on the financial statements was immaterial as a result of the transition.
In November 2023, the FASB issued ASU 2023-07, Improvements to Reportable Segment Disclosures (Topic 280). ASU 2023-07 requires disclosure of significant segment expenses that are regularly provided to the chief operating decision maker (“CODM”) and included within the segment measure of profit or loss, an amount and description of its composition for other segment items to reconcile to segment profit or loss, and the title and position of the entity's CODM. ASU 2023-07 will be effective retrospectively for fiscal years beginning after December 15, 2023 and interim periods beginning after December 15, 2024. The Company will continue to evaluate the impact of the guidance on our consolidated financial statements.
In December 2023, the FASB issued ASU 2023-09, Improvements to Income Tax Disclosures that requires public companies to annually (1) disclose specific categories in the rate reconciliation and (2) provide additional information for reconciling items that meet a quantitative threshold (if the effect of those reconciling items is equal to or greater than 5 percent of the amount computed by multiplying pretax income or loss by the applicable statutory income tax rate). The ASU is effective for annual periods beginning after December 15, 2024. We are currently evaluating the impact of the guidance until it becomes effective.
LXP INDUSTRIAL TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($000, except share/unit data)
(3)Earnings Per Share
A portion of the Company's non-vested share-based payment awards are considered participating securities and as such, the Company is required to use the two-class method for the computation of basic and diluted earnings per share. Under the two-class computation method, net losses are not allocated to participating securities unless the holder of the security has a contractual obligation to share in the losses. The non-vested share-based payment awards are not allocated losses as the awards do not have a contractual obligation to share in losses of the Company.
The following is a reconciliation of the numerators and denominators of the basic and diluted earnings per share computations for each of the years in the three-year period ended December 31, 2023:
2023 2022 2021
BASIC:
Net income attributable to common shareholders
$ 23,863 $ 107,307 $ 375,848
Weighted-average number of common shares outstanding
290,245,877 279,887,760 277,640,835
Net income attributable to common shareholders - per common share basic
$ 0.08 $ 0.38 $ 1.35
2023 2022 2021
DILUTED:
Net income attributable to common shareholders - basic
$ 23,863 $ 107,307 $ 375,848
Impact of assumed conversions (58) 156 7,962
Net income attributable to common shareholders
$ 23,805 $ 107,463 $ 383,810
Weighted-average common shares outstanding - basic
290,245,877 279,887,760 277,640,835
Effect of dilutive securities:
Unvested share-based payment awards and options 127,251 457,597 989,177
Shares issuable under forward sales agreements - 1,274,842 2,110,315
Operating Partnership Units 820,386 853,259 1,918,845
Series C Cumulative Convertible Preferred - - 4,710,570
Weighted-average common shares outstanding - diluted
291,193,514 282,473,458 287,369,742
Net income attributable to common shareholders - per common share diluted
$ 0.08 $ 0.38 $ 1.34
For per common share amounts, all incremental shares are considered anti-dilutive for periods that have a loss from continuing operations attributable to common shareholders. In addition, other common share equivalents may be anti-dilutive in certain periods.
Calculation of dilutive earnings requires certain potentially dilutive shares to be excluded when the inclusion of such shares would be anti-dilutive. The following table summarizes the potentially dilutive shares excluded from the dilutive earnings per share calculation as the inclusion of such shares would be anti-dilutive for each of the years in the three-year period ended December 31, 2023:
Years Ended December 31,
2023 2022 2021
Unvested share-based payment awards - - 44,261
Preferred shares - Series C 4,710,570 4,710,570 -
LXP INDUSTRIAL TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($000, except share/unit data)
(4) Investments in Real Estate
The Company's real estate, net, consists of the following at December 31, 2023 and 2022:
2023 2022
Real estate, at cost:
Buildings and building improvements
$ 3,424,334 $ 3,335,029
Land, land estates and land improvements
348,133 346,816
Construction in progress
1,772 9,221
Real estate intangibles:
In-place lease values
303,457 309,393
Tenant relationships
10,388 12,519
Above-market leases
680 6,695
Land held for development 80,743 84,412
Investments in real estate under construction 319,355 361,924
4,488,862 4,466,009
Accumulated depreciation and amortization(1)
(904,709) (800,470)
Real estate, net $ 3,584,153 $ 3,665,539
(1)Includes accumulated amortization of real estate intangible assets of $191,332 and $173,443 in 2023 and 2022, respectively. The estimated amortization of the above real estate intangible assets for the next five years is $26,487 in 2024, $22,558 in 2025, $19,550 in 2026, $14,466 in 2027 and $11,319 in 2028.
The Company had below-market leases, net of accumulated accretion, which are included in deferred revenue, of $9,385 and $11,214, respectively, as of December 31, 2023 and 2022. The estimated accretion for the next five years is $1,830 in 2024, $1,740 in 2025, $1,538 in 2026, $1,292 in 2027 and $1,004 in 2028.
The Company acquired or completed and placed into service the following assets during 2023 and 2022:
2023:
Market Acquisition/ Placed in Service Date Initial
Cost
Basis Primary Lease Expiration Land Building and Improvements
Phoenix, AZ(1)
March 2023 $ 37,173 08/2033 $ 7,552 $ 29,621
Dallas, TX July 2023 15,018 N/A 2,100 12,918
Columbus, OH(1)
October 2023 64,524 10/2033 6,536 57,988
Greenville/Spartanburg, SC(1)
October 2023 21,676 02/2029 1,795 19,881
Central Florida(1)(2)
December 2023 7,985 01/2029 1,961 6,024
$ 146,376 $ 19,944 $ 126,432
(1)Initial basis excludes certain remaining costs, including developer partner promote/fee, if any.
(2)Represents a portion of the South Shore development project placed into service.
2022:
Market(1)
Acquisition/ Placed in Service Date Initial
Cost
Basis Primary Lease Expiration Land Building and Improvements Lease in-place Value Intangible
Cincinnati/Dayton, OH(2)
February 2022 $ 23,382 N/A $ 2,010 $ 21,372 $ -
Cincinnati/Dayton, OH February 2022 48,660 04/2032 4,197 40,944 3,519
Phoenix, AZ April 2022 59,140 05/2037 5,366 50,281 3,493
Greenville/Spartanburg, SC(3)
December 2022 64,067 04/2035 2,484 61,583 -
$ 195,249 $ 14,057 $ 174,180 $ 7,012
Weighted-average life of intangible assets (years) 12.7
(1)A land parcel located in Hebron, OH was also purchased for $747.
(2)Subsequent to acquisition, property was fully leased for approximately nine years.
(3)Development project substantially completed and placed in service. Initial basis excludes certain remaining costs, including developer partner promote.
LXP INDUSTRIAL TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($000, except share/unit data)
In 2022, the Company purchased the remaining 13% of equity owned by a noncontrolling interest in the Fairburn, Georgia warehouse/distribution facility for $27,958. As the Company previously consolidated its interest in the joint venture which owned the property, the acquisition of the noncontrolling ownership interest was recorded as an equity transaction with the difference between the purchase price and carrying balance of $25,058 recorded as a reduction in additional paid-in-capital.
As of December 31, 2023, the details of the development arrangements outstanding are as follows (in $000's, except square feet):
Project (% owned) # of Buildings Market Estimated Sq. Ft. (unaudited) Estimated Project Cost(1)
GAAP Investment Balance as of
12/31/2023(2)
Amount Funded as of
12/31/2023(3)
Building Completion Date (unaudited) % Leased as of
12/31/2023 Placed in Service Date
Development Projects Leased:
Cotton 303 (93%)(4)
1 Phoenix, AZ 488,400 $ 55,300 $ 50,716 $ 44,523 1Q 2024 100 % 1Q 2024
1 488,400 $ 55,300 $ 50,716 $ 44,523
Development Projects Available for Lease:
Ocala (80%)
1 Central Florida 1,085,280 $ 85,200 $ 80,184 $ 70,605 1Q 2023 - % -
Mt. Comfort (80%)
1 Indianapolis, IN 1,053,360 66,400 64,489 58,736 1Q 2023 - % -
Smith Farms (90%)
1 Greenville-Spartanburg, SC 1,091,888 76,500 72,411 69,244 2Q 2023 - % -
South Shore (100%)(5)
2 Central Florida 213,195 33,500 29,739 29,771 2Q 2023 - 3Q 2023 - % -
ETNA Building D (100%)(6)
1 Columbus, OH 250,020 30,200 21,816 15,928 1Q 2024 - % -
6 3,693,743 $ 291,800 $ 268,639 $ 244,284
7 4,182,143 $ 347,100 $ 319,355 $ 288,807
(1)Estimated project cost includes estimated tenant improvements and leasing costs and excludes potential developer fee or partner promote, if any.
(2)Excludes leasing costs.
(3) Excludes noncontrolling interests' share.
(4) Subsequent to December 31, 2023, the property was placed in service.
(5) During the fourth quarter of 2023, a 57,690 square foot portion of the project, representing 23% of the total project, was occupied by the tenant and placed in service.
(6) During the fourth quarter of 2023, a wholly-owned subsidiary of LXP purchased approximately 14 acres of land and the partially completed leasehold improvements from ETNA Park 70.
As of December 31, 2023, the Company's aggregate investment in development arrangements was $319,355, which included capitalized interest of $8,134 for the year ended December 31, 2023 and is presented as investments in real estate under construction in the accompanying consolidated balance sheets. For the year ended December 31, 2022, capitalized interest for development arrangements was $6,330.
As of December 31, 2023, the details of the land held for industrial development are as follows (in $000's, except acres):
Project (% owned) Market Approximate Acres (unaudited) GAAP Investment Balance as of
12/31/2023 LXP Amount Funded
as of
12/31/2023(1)
Consolidated:
Reems & Olive (95.5%)(2)
Phoenix, AZ 320 $ 73,683 $ 74,308
Mt. Comfort Phase II (80%)
Indianapolis, IN 116 5,328 4,283
ATL Fairburn (100%)
Atlanta, GA 14 1,732 1,751
450 $ 80,743 $ 80,342
(1)Excludes noncontrolling interests' share.
(2)During the fourth quarter of 2023, a perpetual utility easement was granted in exchange for $6,172, which was accounted for as a sale of real estate.
LXP INDUSTRIAL TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($000, except share/unit data)
(5)Dispositions and Impairment
For the years ended December 31, 2023, 2022 and 2021, the Company disposed of its interests in various properties for an aggregate gross disposition price of $100,152, $196,989 and $823,966, respectively, which resulted in gains on sales of $33,010, $59,094 and $367,274, respectively, including, in 2021 the sale of 22 special purpose industrial assets to a newly-formed joint venture, NNN MFG Cold JV L.P. (“MFG Cold JV”), with an unaffiliated third-party.
Included in the 2021 dispositions are three non-industrial properties with a disposition price of $35,369, which was satisfied through (i) the redemption of 1,598,906 OP units, (ii) the assumption of $11,610 of third party mortgage financing that encumbered two of the properties and (iii) $1,497 of seller financing. The seller financing note receivable has a fixed interest rate of 6.0% per annum which was paid in full during the year ended December 31, 2023.
For the years ended December 31, 2023 and December 31, 2022 the Company recognized no debt satisfaction charges relating to properties sold. For the year ended December 31, 2021, the Company recognized net debt satisfaction charges relating to properties sold of $229.
The Company had two and three properties classified as held for sale at December 31, 2023 and December 31, 2022, respectively. Assets and liabilities of the held for sale properties consisted of the following:
December 31, 2023 December 31, 2022
Assets:
Real estate, at cost $ 9,018 $ 131,557
Real estate, intangible assets - 9,942
Accumulated depreciation and amortization - (76,205)
Other 150 1,140
Total assets held for sale $ 9,168 $ 66,434
Liabilities:
Accounts payable and other liabilities $ 5 $ 637
Deferred revenue 53 143
Prepaid rent 359 370
Total liabilities held for sale $ 417 $ 1,150
The Company assesses on a regular basis whether there are any indicators that the carrying value of its real estate assets may be impaired. Potential indicators may include an increase in vacancy at a property, tenant financial instability, change in the estimated holding period of the asset, the potential sale or transfer of the property in the near future and changes in economic conditions. An asset is determined to be impaired if the asset's carrying value is in excess of its estimated fair value and the Company estimates that its cost will not be recovered.
During 2023, 2022 and 2021, the Company recognized aggregate impairment charges on real estate properties of $16,490, $3,037 and $5,541, respectively. During 2023, 2022 and 2021, the aggregate impairment charges were recognized on properties that were primarily impaired due to a reduction in the anticipated holding period for those properties.
LXP INDUSTRIAL TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($000, except share/unit data)
(6)Fair Value Measurements
The following tables present the Company's assets and liabilities measured at fair value on a recurring and non-recurring basis as of December 31, 2023 and 2022, aggregated by the level in the fair value hierarchy within which those measurements fall:
Fair Value Measurements Using
Description 2023 (Level 1) (Level 2) (Level 3)
Interest rate swap assets $ 9,471 $ - $ 9,471 $ -
Impaired assets held for sale (1)
$ 9,170 $ - $ - $ 9,170
(1) The Company estimated the fair value of certain real estate assets throughout the year based on a discounted cash flow analysis using a discount rate of 10.0% and a residual capitalization rate of 8.0%. As significant inputs to the models are unobservable, the Company determined that the value determined for these properties falls within Level 3 of the fair value reporting hierarchy.
Fair Value Measurements Using
Description 2022 (Level 1) (Level 2) (Level 3)
Interest rate swap assets $ 16,318 $ - $ 16,318 $ -
The majority of the inputs used to value the Company's interest rate swaps fall within Level 2 of the fair value hierarchy, such as observable market interest rate curves; however, the credit valuation associated with the interest rate swaps utilizes Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by the Company and its counterparties. As of December 31, 2023 and 2022, the Company determined that the credit valuation adjustment relative to the overall interest rate swaps was not significant. As a result, all interest rate swaps have been classified in Level 2 of the fair value hierarchy.
The table below sets forth the carrying amounts and estimated fair values of the Company's financial instruments as of December 31, 2023 and 2022:
As of December 31, 2023 As of December 31, 2022
Carrying
Amount Fair Value Carrying
Amount Fair Value
Assets
Investment in a sales-type lease, net $ 63,464 $ 62,500 $ 61,233 $ 60,984
Liabilities
Debt $ 1,770,827 $ 1,630,066 $ 1,488,051 $ 1,293,239
The fair value of the Company's investment in a sales-type lease, net is primarily estimated utilizing Level 3 inputs by using a discounted cash flow analysis and an estimate of the unguaranteed residual value.
The fair value of the Company's debt is primarily estimated utilizing Level 3 inputs by using a discounted cash flow analysis, based upon estimates of market interest rates. The Company determines the fair value of its Senior Notes using market prices. The inputs used in determining the fair value of these notes are categorized as Level 1 due to the fact that the Company uses quoted market rates to value these instruments. However, the inputs used in determining the fair value could be categorized as Level 2 if trading volumes are low.
Fair values cannot be determined with precision, may not be substantiated by comparison to quoted prices in active markets and may not be realized upon sale. Additionally, there are inherent uncertainties in any fair value measurement technique, and changes in the underlying assumptions used, including discount rates, liquidity risks and estimates of future cash flows, could significantly affect the fair value measurement amounts.
Cash Equivalents, Restricted Cash, Short-Term Investments, Accounts Receivable and Accounts Payable. The Company estimates that the fair value of cash equivalents, restricted cash, short-term investments, accounts receivable and accounts payable approximates carrying value due to the relatively short maturity of the instruments.
LXP INDUSTRIAL TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($000, except share/unit data)
(7)Investments in Non-Consolidated Entities
Below is a schedule of the Company's investments in non-consolidated entities:
Percentage Ownership at Investment Balance as of December 31, Equity in earnings (losses) of non-consolidated entities
Years ended December 31,
Investment December 31, 2023 2023 2022 2023 2022 2021
NNN MFG Cold JV L.P. (“MFG Cold JV”)(1)
20% $ 19,693 $ 26,592 $ (3,300) $ (2,050) $ -
NNN Office JV L.P. (“Office JV”)(2)
20% 16,237 12,900 508 18,156 (140)
Etna Park 70 LLC(3)
90% 10,320 12,975 (258) (137) (93)
Etna Park 70 East LLC(4)
90% 2,245 2,126 (192) (174) (114)
BSH Lessee L.P.(5)
25% - 3,613 4,608 211 157
$ 48,495 $ 58,206 $ 1,366 $ 16,006 $ (190)
(1)MFG Cold JV is a joint venture formed in 2021 that owns special purpose industrial properties formerly owned by the Company.
(2) Office JV is a joint venture formed in 2018 that owns office properties formerly owned by the Company. During 2023 and 2022, Office JV sold one and six assets, respectively, and the Company recognized its share of aggregate gains on sale of $1,010 and $24,513, respectively, within equity in earnings of non-consolidated entities within its consolidated statements of operations.
(3) Joint venture formed in 2017 with a developer entity to acquire a parcel of land. In the second quarter of 2023, the joint venture commenced development of a 250,020 square foot industrial speculative development project for an estimated cost of $30,200. As of December 31, 2023, the Company's wholly owned subsidiary purchased the land and building improvements for approximately $15,897 and recorded it in investment in real estate under construction on its consolidated balance sheet.
(4) Joint venture formed in 2019 with a developer entity to acquire a parcel of land.
(5) A joint venture investment which sold its sole single-tenant, net-leased asset in January 2023 and the Company recognized its share of the gain on sale of $4,791 within equity in earnings of non-consolidated entities within its consolidated statements of operations.
The Company earns advisory fees from certain of these non-consolidated entities for services related to acquisitions, asset management and debt placement services. Advisory fees earned from these non-consolidated investments were $4,337, $5,615 and $2,968 for the years ended December 31, 2023, 2022 and 2021.
(8) Leases
Lessor
Operating Leases. The Company’s lease portfolio as a lessor primarily includes general purpose, single-tenant net-leased real estate assets. Most of the Company’s leases require tenants to pay fixed annual rental payments that escalate on an annual basis and variable payments for other operating expenses, such as real estate taxes, insurance, common area maintenance (“CAM”), and utilities, that are based on the actual expenses incurred.
Certain leases allow for the tenant to renew the lease term upon expiration or earlier. Periods covered by a renewal option are included within the lease term only when renewals are deemed to be reasonably certain. Certain leases allow for the tenant to terminate the lease before the expiration of the lease term and certain leases provide the tenant with the right to purchase the leased property at fair market value or a stipulated price upon expiration of the lease term or before.
Accounting guidance under ASC 842 requires the Company to make certain assumptions and judgments in applying the guidance, including determining whether an arrangement includes a lease and determining the lease term when the contract has renewal, purchase or early termination provisions.
LXP INDUSTRIAL TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($000, except share/unit data)
The Company analyzes its accounts receivable, customer creditworthiness and current economic trends when evaluating the adequacy of the collectability of the lessee's total accounts receivable balance on a lease by lease basis. In addition, tenants in bankruptcy are analyzed and considerations are made in connection with the expected pre-petition and post-petition claims. If a lessee's accounts receivable balance is considered uncollectible, the Company will write-off the receivable balances associated with the lease to rental revenue and cease to recognize lease income, including straight-line rent, unless cash is received. If the Company subsequently determines that it is probable it will collect substantially all of the lessee's remaining lease payments under the lease term; the Company will reinstate the straight-line balance adjusting for the amount related to the period when the lease was accounted for on a cash basis.
During the years ended December 31, 2022 and 2021, the Company wrote off an aggregate of $417 and $370, respectively, accounts receivable, net, relating to certain tenants suffering from the current economic conditions. During the year ended December 31, 2023, no accounts receivable was written off.
The Company elected that the lease and non-lease components in its leases are a single lease component, which is, therefore, being recognized as rental revenue in its consolidated statements of operations. The primary non-lease service included within rental revenue is CAM services provided as part of the Company’s real estate leases. ASC 842 requires that the Company capitalize, as initial direct costs, only those costs that are incurred due to the execution of a lease. For the year ended December 31, 2023, the Company incurred a nominal amount of costs that were not incremental to the execution of leases. For the years ended December 31, 2022 and 2021, the Company incurred $2 and $19, respectively, of costs that were not incremental to the execution of leases.
The Company manages the risk associated with the residual value of its leased properties by including contract clauses that make tenants responsible for surrendering the space in good condition upon lease termination, holding a diversified portfolio, and other activities. The Company does not have residual value guarantees on specific properties.
Sales-Type Leases. As of December 31, 2023, the Company had one ground lease for a 100-acre industrial development land parcel in the Phoenix, Arizona market, which is classified as a sales-type lease. At the commencement date of the lease, the Company evaluated the lease classification and classified the lease as a sales-type lease. The lease contains a purchase option in the amount of $20.00 per land square foot starting on the second anniversary date of the lease and ending on the third anniversary date. The Company determined that the purchase option is not reasonably certain of being exercised. The lease met the sales-type lease criteria because the present value of the lease payments was equal to substantially all of the fair value of the underlying asset on the lease commencement date. The Company recorded $60,984 in investment in a sales-type lease, net and derecognized $24,109 from land held for development in the consolidated balance sheets. The Company recognized $36,875 in selling profit from sales-type leases and $4,119 of direct costs to enter into the lease within transaction costs in the consolidated statements of operations for the year ended December 31, 2022. The interest income earned from sales-type leases is included in rental revenue in the consolidated statements of operations. The residual value of the land parcel at the end of the ground lease is estimated to equal its fair value on the commencement date of the lease of $60,984 because land values typically appreciate over time but the accounting guidance does not allow the residual value at the end of the lease to be in excess of the fair value at the commencement date of the lease.
For the year ended December 31, 2023 and 2022, the interest income earned from sales-type leases of $7,427 and $1,936, respectively, is included in rental revenue in the consolidated statements of operations. There was no sales-type lease income recognized in 2021.
In 2022, the Company had two tenants that exercised the purchase option within their lease for an aggregate purchase option price of $34,841. The purchase options were not reasonably certain to be exercised at the commencement date of each lease, resulting in modifications of the operating leases. As a result of these modifications to the leases, the Company re-evaluated the lease classifications and classified both leases as sales-type leases. The Company recognized an aggregate of $10,184 in selling profit from sales-type leases in its consolidated statements of operations related to these transactions for the year ended December 31, 2022.
LXP INDUSTRIAL TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($000, except share/unit data)
Rental Revenue Classification. The following table presents the Company’s classification of rental revenue for its operating and sales-type leases for the years ended December 31, 2023, 2022 and 2021:
Years Ended December 31,
Classification 2023 2022 2021
Fixed $ 275,186 $ 267,644 $ 287,552
Sales-type lease income 7,427 1,936 -
Variable(1)(2)
51,607 44,412 52,392
Total $ 334,220 $ 313,992 $ 339,944
(1) Primarily comprised of tenant reimbursements.
(2) Variable lease payments include termination revenue of $238 and $15,371 for the years ending December 31, 2022 and 2021, respectively. The Company did not recognize any termination revenue during the year ended December 31, 2023.
Future fixed rental receipts for operating and sales-type leases, assuming no new or re-negotiated leases as of December 31, 2023 were as follows:
Year ending December 31, Operating Sales-Type
2024 $ 264,322 $ 5,263
2025 254,347 5,473
2026 237,312 5,692
2027 201,098 5,920
2028 170,950 6,156
Thereafter 572,643 733,006
Total $ 1,700,672 $ 761,510
Difference between undiscounted cash flow and present value (697,985)
Investment in a sales-type lease $ 63,525
The above minimum lease payments do not include reimbursements to be received from tenants for certain operating expenses and real estate taxes and do not include early termination payments provided for in certain leases, if not reasonably certain.
Certain leases allow for the tenant to terminate the lease if the property is deemed obsolete, as defined, and upon payment of a termination fee to the landlord, as stipulated in the lease. In addition, certain leases provide the tenant with the right to purchase the leased property at fair market value or a stipulated price.
Lessee
The Company, as lessee, has ground leases, corporate leases for office space, and office equipment leases. All leases were classified as operating leases as of December 31, 2023. The leases have remaining lease terms of up to 33 years. Renewal periods are included in the lease term only when renewal is deemed to be reasonably certain. The lease term also includes periods covered by an option to terminate the lease if the Company is reasonably certain not to exercise the termination option. The Company measures its lease payments by including fixed rental payments and variable rental payments that tie to an index or a rate, such as CPI. The Company recognizes lease expense for its operating leases on a straight-line basis over the lease term and variable lease expense not included in the lease payment measurement as incurred.
The accounting guidance under ASC 842 requires the Company to make certain assumptions and judgments in applying the guidance, including determining whether an arrangement includes a lease, determining the term of a lease when the contract has renewal or termination provisions and determining the discount rate.
LXP INDUSTRIAL TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($000, except share/unit data)
The Company determines whether an arrangement is or includes a lease at contract inception by evaluating whether the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. If the Company has the right to obtain substantially all of the economic benefits from and can direct the use of, the identified asset for a period of time, the Company accounts for the contract as a lease.
The Company uses the information available at the lease commencement date to determine the discount rate for any new leases. The Company used a portfolio approach to determine its incremental borrowing rate. Lease contracts were grouped based on similar lease terms and economic environments in a manner in which the Company reasonably expects that the outcome from applying a portfolio approach does not differ materially from an individual lease approach. The Company estimated a collateralized discount rate for each portfolio of leases.
Supplemental information related to operating leases is as follows:
Years Ended December 31,
2023 2022
Weighted-average remaining lease term
Operating leases (years) 8.7 9.4
Weighted-average discount rate
Operating leases 4.0 % 4.0 %
The components of lease expense for the years ended December 31, 2023, 2022 and 2021 were as follows:
Income Statement Classification Fixed Variable Total
2023:
Property operating $ 3,539 $ 7 $ 3,546
General and administrative 1,521 280 1,801
Total $ 5,060 $ 287 $ 5,347
2022:
Property operating $ 3,543 $ - $ 3,543
General and administrative 1,520 122 1,642
Total $ 5,063 $ 122 $ 5,185
2021:
Property operating $ 3,645 $ 3 $ 3,648
General and administrative 1,380 70 1,450
Total $ 5,025 $ 73 $ 5,098
The Company recognized sublease income of $3,320 for the years ended December 31, 2023 and 2022 and $3,425 in 2021.
LXP INDUSTRIAL TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($000, except share/unit data)
The following table shows the Company's maturity analysis of its operating lease liabilities as of December 31, 2023:
Year ending December 31, Operating Leases
2024 $ 5,169
2025 5,174
2026 4,144
2027 3,643
2028 1,031
Thereafter 5,479
Total lease payments
24,640
Less: Imputed interest (4,407)
Present value of lease liabilities
$ 20,233
(9) Allowance for Credit Loss
During 2023 and 2022, the Company recognized $(32) and $93, respectively, of credit loss allowances resulting from an investment in a sales-type lease. There were no allowances for credit losses in 2021.
As of December 31, 2023, the lessee in the sales-type lease remains current on their obligations to the Company and, therefore, the investment is not on non-accrual status.
The following tables detail the allowance for credit loss as of December 31, 2023 and 2022:
As of December 31, 2023
Amortized cost Allowance Net Investment Allowance as a % of Amortized Cost
Investment in a sales-type lease $ 63,525 $ (61) $ 63,464 0.10 %
As of December 31, 2022
Investment in a sales-type lease $ 61,326 $ (93) $ 61,233 0.15 %
For the Twelve Months Ended December 31, 2023
Balance at Beginning of Period Write-Offs General Allowance Balance at End of Period
Allowance for credit loss $ 93 $ - $ (32) $ 61
For the Twelve Months Ended December 31, 2022
Allowance for credit loss $ - $ - $ 93 $ 93
(10) Mortgages and Notes Payable
The Company had the following mortgages and notes payable outstanding as of December 31, 2023 and 2022:
December 31, 2023 December 31, 2022
Mortgages and notes payable $ 60,888 $ 73,154
Unamortized debt issuance costs (764) (1,051)
$ 60,124 $ 72,103
Interest rates, including imputed rates on mortgages and notes payable, ranged from 3.5% to 4.3% at December 31, 2023 and 2022, respectively, and all mortgages and notes payable mature between 2028 and 2031 as of December 31, 2023. The weighted-average interest rate at December 31, 2023 and 2022 was approximately 4.0%, respectively.
LXP INDUSTRIAL TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($000, except share/unit data)
The Company has an unsecured credit agreement with KeyBank National Association, as agent. The maturity dates and interest rates as of December 31, 2023, are as follows:
Maturity Date Interest Rate
$600,000 Revolving Credit Facility(1)
July 2026 SOFR + 0.85%
$300,000 Term Loan(2)
January 2027 Term SOFR + 1.00%
(1)Maturity date of the revolving credit facility can be extended to July 2027, subject to certain conditions. The interest rate ranges from SOFR (plus a 0.10% index adjustment) plus 0.725% to 1.400%, and the revolving credit facility allows for further reductions upon the achievement of to-be-determined sustainability metrics. At December 31, 2023, the Company had no borrowings outstanding and availability of $600,000, subject to covenant compliance.
(2) In November 2023, the Company amended the agreement governing the $300,000 term loan. The amendment, among other things, extends the maturity of the term loan from January 31, 2025 to January 31, 2027. The Term SOFR portion of the interest rate was swapped to obtain a current fixed rate of 2.722% per annum until January 31, 2025. The Company recognized $132 of debt satisfaction losses in connection with this transaction. The aggregate unamortized debt issuance costs for the term loan were $3,236 and $1,041 as of December 31, 2023 and 2022, respectively.
The Company was compliant with all applicable financial covenants contained in its corporate-level debt agreements at December 31, 2023.
Mortgages payable and secured loans are generally collateralized by real estate and the related leases. Certain mortgages payable have yield maintenance or defeasance requirements relating to any prepayments.
Scheduled principal and balloon payments for mortgages, notes payable and term loan for the next five years and thereafter are as follows:
Year ending December 31, Total
2024 $ 5,373
2025 5,570
2026 5,773
2027 305,984
2028 2,223
Thereafter 35,965
360,888
Unamortized debt issuance costs (4,000)
$ 356,888
In addition, the Company capitalized $11,059, $7,235 and $2,974 of interest expense for the years ended 2023, 2022 and 2021, respectively.
LXP INDUSTRIAL TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($000, except share/unit data)
(11) Senior Notes, Convertible Notes and Trust Preferred Securities
The Company had the following Senior Notes outstanding as of December 31, 2023 and 2022:
Issue Date December 31, 2023 December 31, 2022 Interest Rate Maturity Date Issue Price
November 2023 $ 300,000 $ - 6.750 % November 2028 99.423 %
August 2021 400,000 400,000 2.375 % October 2031 99.758 %
August 2020 400,000 400,000 2.70 % September 2030 99.233 %
May 2014 198,932 198,932 4.40 % June 2024 99.883 %
1,298,932 998,932
Unamortized debt discount (4,489) (3,228)
Unamortized debt issuance cost (8,298) (6,409)
$ 1,286,145 $ 989,295
Each series of the senior notes is unsecured and requires payment of interest semi-annually in arrears. The Company may redeem the notes at its option at any time prior to maturity in whole or in part by paying the principal amount of the notes being redeemed plus a make-whole premium.
In November 2023, the Company issued $300,000 aggregate principal amount of 6.750% Senior Notes due 2028 (“2028 Senior Notes”) at an issuance price of 99.423% of the principal amount. The Company issued the 2028 Senior Notes at an initial discount of $1,731, which is being recognized as additional interest expense over the term of the 2028 Senior Notes. The Company used the net proceeds to pay down amounts outstanding on its unsecured revolving credit facility and for general corporate purposes. A portion of the proceeds were invested on a short-term basis and the Company intends to use the investments to repay the 2014 Senior Notes at or near maturity.
In August 2021, the Company issued $400,000 aggregate principal amount of 2.375% Senior Notes due 2031 (“2031 Senior Notes”) at an issuance price of 99.758% of the principal amount. The Company issued the 2031 Senior Notes at an initial discount of $968, which is being recognized as additional interest expense over the term of the 2031 Senior Notes. The Company used a portion of the net proceeds from the offering of the 2031 Senior Notes to redeem the $188,756 aggregate principal balance of its outstanding 4.25% Senior Notes due 2023 (“2023 Senior Notes”). The consideration paid included a make-whole premium of $12,191 and $2,028 of accrued and unpaid interest. The Company recognized a $12,948 debt satisfaction loss related to the aggregate redemptions.
During 2007, the Company issued $200,000 original principal amount of Trust Preferred Securities. The Trust Preferred Securities, which are classified as debt, are due in 2037, are open for redemption at the Company's option, and bear interest at a variable rate of three month SOFR plus 26 basis points through maturity. The interest rate at December 31, 2023 was 7.352%. As of December 31, 2023 and 2022, there was $129,120 original principal amount of Trust Preferred Securities outstanding and $1,326 and $1,426, respectively, of unamortized debt issuance costs.
Scheduled principal payments for these debt instruments for the next five years and thereafter are as follows:
Year ending December 31, Total
2024 $ 198,932
2025 -
2026 -
2027 -
2028 300,000
Thereafter 929,120
1,428,052
Unamortized debt discounts (4,489)
Unamortized debt issuance costs (9,624)
$ 1,413,939
LXP INDUSTRIAL TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($000, except share/unit data)
(12) Derivatives and Hedging Activities
Risk Management Objective of Using Derivatives. The Company is exposed to certain risks arising from both its business operations and economic conditions. The Company principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. The Company manages economic risks, including interest rate, liquidity, and credit risk primarily by managing the type, amount, sources, and duration of its debt funding and the use of derivative financial instruments. Specifically, the Company enters into derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future known and uncertain cash amounts, the value of which are determined by interest rates. The Company's derivative financial instruments are used to manage differences in the amount, timing, and duration of the Company's known or expected cash receipts and its known or expected cash payments principally related to the Company's investments and borrowings.
Cash Flow Hedges of Interest Rate Risk. The Company's objectives in using interest rate derivatives are to add stability to interest expense, to manage its exposure to interest rate movements and therefore manage its cash outflows as it relates to the underlying debt instruments. To accomplish these objectives the Company primarily uses interest rate swaps as part of its interest rate risk management strategy relating to certain of its variable rate debt instruments. Interest rate swaps designated as cash flow hedges involve the receipt of variable-rate amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount.
The changes in the fair value of derivatives designated and that qualify as cash flow hedges is recorded in accumulated other comprehensive income (loss) and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. The Company did not incur any ineffectiveness during 2023 and 2022.
During July 2022, the Company transitioned its four interest rate swap agreements with its counterparties to a benchmark rate of Term SOFR. The swaps were designated as cash flow hedges of the risk in variability attributable to changes in the Term SOFR swap rates on its $300,000 SOFR-indexed variable rate unsecured term loan. Accordingly, changes in fair value of the swaps are recorded in other comprehensive income (loss) and reclassified to earnings as interest becomes receivable or payable. The swaps expire in January 2025. During the next 12 months, the Company estimates that an additional $8,977 will be reclassified as a decrease to interest expense if the swaps remain outstanding.
As of December 31, 2023, the Company had the following outstanding interest rate derivatives that were designated as cash flow hedges of interest rate risk:
Interest Rate Derivative Number of Instruments Notional
Interest Rate Swaps 4 $300,000
The table below presents the fair value of the Company's derivative financial instruments as well as their classification on the consolidated balance sheets.
As of December 31, 2023 As of December 31, 2022
Derivatives designated as hedging instruments: Balance Sheet Location Fair Value Balance Sheet Location Fair Value
Interest Rate Swaps Other Assets $ 9,471 Other Assets $ 16,318
LXP INDUSTRIAL TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($000, except share/unit data)
The table below present the effect of the Company's derivative financial instruments on the consolidated statements of operations for 2023 and 2022:
Derivatives in Cash Flow Amount of Gain Recognized
in OCI on Derivative
December 31, Amount of (Income) Loss
Reclassified from
Accumulated OCI into Income (1)
December 31,
Hedging Relationships 2023 2022 2023 2022
Interest Rate Swap $ 3,496 $ 22,578 $ (10,343) $ (2)
The Company's share of non-consolidated entity's interest rate cap 158 1,455 (1,517) (84)
Total $ 3,654 $ 24,033 $ (11,860) $ (86)
(1) Amounts reclassified from accumulated other comprehensive income (loss) to interest expense within the consolidated statements of operations.
Total interest expense presented in the consolidated statements of operations in which the effects of cash flow hedges are recorded was $46,389 and $45,417 for 2023 and 2022, respectively.
The Company's agreements with the swap derivative counterparties contain provisions whereby if the Company defaults on the underlying indebtedness, including default where repayment of the indebtedness has not been accelerated by the lender, then the Company could also be declared in default of the swap derivative obligation. As of December 31, 2023, the Company had not posted any collateral related to the agreements.
(13)Concentration of Risk
The Company seeks to reduce its operating and leasing risks through the geographic diversification of its properties in target markets, tenant industry diversification, avoidance of dependency on a single asset and the creditworthiness of its tenants. For the years ended December 31, 2023, 2022 and 2021, no single tenant represented greater than 10% of rental revenues.
Cash and cash equivalent balances and certain short-term investments at certain institutions may exceed insurable amounts. The Company believes it mitigates this risk by investing in or through major financial institutions.
(14)Equity
Shareholders' Equity:
At-The-Market Offering Program. The Company maintains an At-The-Market offering program (“ATM program”) under which the Company can issue common shares, including through forward sales contracts. During 2023, there were no share issuances under the ATM program.
During 2022, the Company issued 3,649,023 common shares previously sold on a forward basis in the first quarter of 2021 on the maturity date of the contracts and received $38,492 of net proceeds.
During 2021, the Company amended the terms of its ATM offering program, under which the Company may, from time to time, sell up to $350,000 of common shares over the term of the program. As of December 31, 2023, common shares with an aggregate value of $294,985 remain available for issuance under the ATM program.
Underwritten Equity Offerings. During 2021, the Company entered into forward sales contracts for the sale of 16,000,000 common shares at a public offering price of $12.11 per common share in an underwritten equity offering. The forward sale contracts were settled in December 2022, and the Company received $183,419 of net proceeds. The Company did not issue common shares as part of an underwritten offering in 2023.
Stock Based Compensation. In addition, during the years ended December 31, 2023, 2022 and 2021, the Company issued 1,284,704, 930,602 and 949,573 of its common shares, respectively, to certain employees and trustees. Typically, trustee share grants vest immediately. Employee share grants generally vest ratably, on anniversaries of the grant date, however, in certain situations vesting is cliff-based after a specific number of years and/or subject to meeting certain performance criteria.
LXP INDUSTRIAL TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($000, except share/unit data)
Share Repurchase Program. In August 2022, the Company's Board of Trustees authorized the repurchase of up to an additional 10,000,000 common shares under the Company's share repurchase program, which does not have an expiration date. There were no common shares repurchased during 2023. During 2022, 12,102,074 common shares were repurchased and retired for an average price of $10.78 per share. As of December 31, 2023, 6,874,241 common shares remain available for repurchase under this authorization. The Company records a liability for repurchases that have not yet been settled as of the period end. There were no unsettled repurchases as of December 31, 2023.
Series C Preferred Stock. The Company had 1,935,400 shares of Series C Cumulative Convertible Preferred Stock (“Series C Preferred”) outstanding at December 31, 2023. The shares have a dividend of $3.25 per share per annum, have a liquidation preference of $96,770, and the Company, if certain common share prices are achieved, can force conversion into common shares of the Company. As of December 31, 2023, each share was convertible into 2.4339 common shares. This conversion ratio may increase over time if the Company's common share dividend exceeds certain quarterly thresholds.
If certain fundamental changes occur, holders may require the Company, in certain circumstances, to repurchase all or part of their shares of Series C Preferred. In addition, upon the occurrence of certain fundamental changes, the Company will, under certain circumstances, increase the conversion rate by a number of additional common shares or, in lieu thereof, may in certain circumstances elect to adjust the conversion rate upon the shares of Series C Preferred becoming convertible into shares of the public acquiring or surviving company.
The Company may, at the Company's option, cause shares of Series C Preferred to be automatically converted into that number of common shares that are issuable at the then prevailing conversion rate. The Company may exercise its conversion right only if, at certain times, the closing price of the Company's common shares equals or exceeds 125% of the then prevailing conversion price of the Series C Preferred.
Holders of shares of Series C Preferred generally have no voting rights, but will have limited voting rights if the Company fails to pay dividends for six or more quarters and under certain other circumstances. Upon conversion, the Company may choose to deliver the conversion value to investors in cash, common shares, or a combination of cash and common shares.
A summary of the changes in accumulated other comprehensive income (loss) related to the Company's cash flow hedges is as follows:
Years ended December 31,
2023 2022
Balance at beginning of period $ 17,689 $ (6,258)
Other comprehensive income before reclassifications 3,654 24,033
Amounts of (income) reclassified from accumulated other comprehensive income to interest expense (11,860) (86)
Balance at end of period $ 9,483 $ 17,689
Noncontrolling Interests. In conjunction with several of the Company's acquisitions in prior years, sellers were issued limited partner interests in LCIF OP units as a form of consideration. All OP units, other than OP units owned by the Company, were redeemable for common shares at certain times, at the option of the holders, and were generally not otherwise mandatorily redeemable by the Company. The OP units were classified as a component of permanent equity as the Company had determined that the OP units were not redeemable securities as defined by GAAP. Each OP unit was redeemable for approximately 1.13 common shares, subject to future adjustments.
During 2023, 2022 and 2021, 832,571, 39,747 and 185,270 common shares, respectively, were issued by the Company, in connection with OP unit redemptions, for an aggregate book value of $3,393, $211 and $958, respectively. Included in the 2023 redemptions were 822,627 common shares issued with an aggregate value of approximately $7,800 to redeem the remaining OP units outstanding at December 31, 2023 to complete the Company's merger with LCIF. The Company is the surviving entity of the merger.
LXP INDUSTRIAL TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($000, except share/unit data)
The following discloses the effects of changes in the Company's ownership interests in its noncontrolling interests:
Net Income Attributable to Shareholders and Transfers from Noncontrolling Interests
2023 2022 2021
Net income attributable to LXP Industrial Trust shareholders $ 30,383 $ 113,783 $ 382,648
Transfers from noncontrolling interests:
Increase in additional paid-in-capital for reallocation of noncontrolling interests - - 435
Increase in additional paid-in-capital for redemption of noncontrolling OP units
3,393 211 958
Change from net income attributable to shareholders and transfers from noncontrolling interests
$ 33,776 $ 113,994 $ 384,041
(15)Benefit Plans
Non-vested share activity for the years ended December 31, 2023 and 2022, is as follows:
Number of
Shares Weighted-Average Grant-Date Fair
Value Per Share
Balance at December 31, 2021 2,290,644 $ 7.17
Granted
860,665 10.97
Vested
(951,472) 7.00
Forfeited
(140,947) 9.21
Balance at December 31, 2022 2,058,890 8.70
Granted
1,191,697 7.97
Vested
(526,453) 9.08
Forfeited
(184,661) 6.34
Balance at December 31, 2023 2,539,473 $ 8.45
During 2023 and 2022, the Company granted common shares to certain employees and trustees as follows:
2023 2022
Performance Shares(1)
Shares issued:
Index
407,611 282,720
Peer
407,606 282,715
Grant date fair value per share:(2)
Index
$ 6.96 $ 9.40
Peer
$ 6.50 $ 8.78
Non-Vested Common Shares:(3)
Shares issued
376,480 295,230
Grant date fair value
$ 4,010 $ 4,304
(1)The shares vest based on the Company's total shareholder return growth after a three-year measurement period relative to an index and a group of Company peers. Dividends will not be paid on these grants until earned. Once the performance criteria are met and the actual number of shares earned is determined, such shares vest immediately. During 2023, 266,812 of the 443,359 outstanding performance shares issued in 2020 vested. During 2022, all of the 552,121 performance shares issued in 2019 vested.
(2)The fair value of grants was determined at the grant date using a Monte Carlo simulation model.
(3)The shares vest ratably over a three-year service period.
LXP INDUSTRIAL TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($000, except share/unit data)
In addition, during 2023, 2022 and 2021, the Company issued 93,007, 69,937 and 50,245, respectively, of fully vested common shares to non-management members of the Company's Board of Trustees with a fair value of $939, $849 and $587, respectively.
As of December 31, 2023, of the remaining 2,539,473 non-vested shares, 642,552 are subject to time-based vesting and 1,896,921 are subject to performance-based vesting. At December 31, 2023, there are 2,994,544 awards available for grant. The Company has $9,157 in unrecognized compensation costs relating to the non-vested shares that will be charged to compensation expense over an average of approximately 1.7 years.
The Company has established a trust for a certain officer in which vested common shares granted for the benefit of the officers are deposited. The officer exerts no control over the common shares in the trust and the common shares are available to the general creditors of the Company. As of December 31, 2023 and 2022, there were 130,863 common shares in the trust.
The Company sponsors a 401(k) retirement savings plan covering all eligible employees. The Company makes a discretionary matching contribution on a portion of employee participant salaries and, based on its profitability, may make an additional discretionary contribution at each fiscal year end to all eligible employees. These discretionary contributions are subject to vesting under a schedule providing for 25% annual vesting starting with the first year of employment and 100% vesting after four years of employment. Approximately $499, $480 and $426 of contributions are applicable to 2023, 2022 and 2021, respectively.
During 2023, 2022 and 2021, the Company recognized $8,210, $6,636 and $6,554, respectively, in expense relating to scheduled vesting of common share grants.
(16) Related Party Transactions
There were no related party transactions other than those disclosed elsewhere in the consolidated financial statements.
(17) Income Taxes
The provision for income taxes relates primarily to the taxable income of the Company's taxable REIT subsidiaries. The earnings, other than in taxable REIT subsidiaries, of the Company are not generally subject to federal income taxes at the Company level due to the REIT election made by the Company.
Income taxes have been provided for on the asset and liability method. Under the asset and liability method, deferred income taxes are recognized for the temporary differences between the financial reporting basis and the tax basis of assets and liabilities.
The Company's provision for income taxes for the years ended December 31, 2023, 2022 and 2021 is summarized as follows:
2023 2022 2021
Current:
Federal $ - $ - $ (26)
State and local (774) (1,120) (1,267)
Deferred federal 71 18 -
Total $ (703) $ (1,102) $ (1,293)
Net deferred tax asset of $89 and $18 are included in Other assets on the accompanying consolidated balance sheets at December 31, 2023 and 2022, respectively. This net deferred tax asset relates primarily to a net operating loss carryforward.
LXP INDUSTRIAL TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($000, except share/unit data)
The income tax provision differs from the amount computed by applying the statutory federal income tax rate to pre-tax operating income as follows:
2023 2022 2021
Federal provision at statutory tax rate (21%)
$ 71 $ 18 $ (35)
State and local taxes, net of federal benefit - - -
Other (774) (1,120) (1,258)
Total $ (703) $ (1,102) $ (1,293)
For the years ended December 31, 2023, 2022 and 2021, the “other” amount is comprised primarily of state franchise taxes of $774, $1,121 and $1,267, respectively.
As of December 31, 2023 and 2022, the Company had estimated net operating loss carry forward for income tax reporting purposes of $423 and $84, respectively.
A summary of the average taxable nature of the Company's common dividends for each of the years in the three-year period ended December 31, 2023, is as follows:
2023 2022 2021
Total dividends per share $ 0.50 $ 0.48 $ 0.43
Ordinary income 71.67 % 81.26 % 65.89 %
Qualifying dividend - % - % 0.1 %
Capital gain - % - % - %
Return of capital 28.33 % 18.74 % 34.01 %
100.00 % 100.00 % 100.00 %
A summary of the average taxable nature of the Company's dividend on shares of its Series C Preferred for each of the years in the three-year period ended December 31, 2023, is as follows:
2023 2022 2021
Total dividends per share $ 3.25 $ 3.25 $ 3.25
Ordinary income 100.00 % 100.00 % 99.84 %
Qualifying dividend - % - % 0.16 %
Capital gain - % - % - %
Return of capital - % - % - %
100.00 % 100.00 % 100.00 %
(18) Commitments and Contingencies
In addition to the commitments and contingencies disclosed elsewhere, the Company has the following commitments and contingencies.
The Company is obligated under certain tenant leases, including its proportionate share for leases for non-consolidated entities, to fund the expansion of the underlying leased properties. The Company, under certain circumstances, may guarantee to tenants the completion of base building improvements and the payment of tenant improvement allowances and lease commissions on behalf of its subsidiaries.
As of December 31, 2023, we expect to incur approximately $53,200, excluding noncontrolling interests' share and potential developer fees or partner buyouts, to substantially fund the consolidated development project commitments. As of December 31, 2023, the Company had interests in various industrial land parcels held for development. The Company is unable to estimate the timing of any required funding for the potential development projects on these parcels.
LXP INDUSTRIAL TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($000, except share/unit data)
From time to time, the Company is directly or indirectly involved in legal proceedings arising in the ordinary course of business. Management believes, based on currently available information, and after consultation with legal counsel, that although the outcomes of those normal course proceedings are uncertain, the results of such proceedings, in the aggregate, will not have a material adverse effect on the Company's business, financial condition and results of operations.
(19) Supplemental Disclosure of Statement of Cash Flow Information
2023 2022 2021
Reconciliation of cash, cash equivalents and restricted cash:
Cash and cash equivalents at beginning of period $ 54,390 $ 190,926 $ 178,795
Restricted cash at beginning of period 116 101 626
Cash, cash equivalents and restricted cash at beginning of period $ 54,506 $ 191,027 $ 179,421
Cash and cash equivalents at end of period $ 199,247 $ 54,390 $ 190,926
Restricted cash at end of period 216 116 101
Cash, cash equivalents and restricted cash at end of period $ 199,463 $ 54,506 $ 191,027
In addition to disclosures discussed elsewhere, during 2023, 2022 and 2021, the Company paid $51,763, $48,675 and $44,234, respectively, for interest and $951, $1,265 and $1,569, respectively, for income taxes.
For the year ended December 31, 2023, 2022 and 2021, the Company accrued additions for capital projects of $21,052, $42,962 and $41,100, respectively.
In 2023, LCIF merged with and into the Company. The consideration included the conversion of the remaining OP units outstanding valued at approximately $7,800.
In 2023, a wholly owned subsidiary of the Company purchased a parcel of land from Etna Park 70, LLC, which the Company has a 90% ownership interest. The transaction generated a gain on sale that the Company recognized as a $1,392 non-cash decrease to the basis acquired.
In 2023, the Company's ground lease related to an office property in Palo Alto, California expired and the lease hold improvements were conveyed back to the ground owner resulting in a non-cash decrease in real estate, at cost and accumulated depreciation and amortization of $29,375.
In 2021, LCIF disposed of three real estate assets. The consideration included the redemption of OP units valued at $22,305 and the assumption of the aggregate related non-recourse mortgage debt of $11,610.
In 2021, as a result of the formation of the MFG Cold JV, the Company recognized a non-cash increase to investments in non-consolidated entities of $28,075 for its 20% interest in MFG Cold JV. Additionally, MFG Cold JV assumed a mortgage loan encumbering one property resulting in a non-cash decrease of $25,850 to mortgages and notes payable, net.
The acquisition of the RR Ocala 44, LLC joint venture in 2021 included a $489 non-cash increase to investments in real estate under construction and the noncontrolling interest because a member of the joint venture made a non-cash contribution of the land in exchange for its ownership interest in the joint venture.
In 2021, the Company entered into a new lease and exercised an extension option on a lease resulting in an aggregate non-cash increase of $1,589 to the related operating lease liabilities and right of use assets.
(20) Subsequent Events
Subsequent to December 31, 2023, the Company acquired the remaining 5% interest in The Cubes at Etna East from its joint venture partner.
LXP INDUSTRIAL TRUST AND SUBSIDIARIES
Real Estate and Accumulated Depreciation and Amortization
Schedule III ($000)
Description Location Encumbrances Land and Land Estates Buildings and Improvements Total Accumulated Depreciation and Amortization(1)
Date Acquired Date Constructed
WAREHOUSE/DISTRIBUTION PROPERTIES
Stabilized:
Industrial Chandler, AZ $ - $ 10,733 $ 69,517 $ 80,250 $ 10,236 Nov-20
Industrial Goodyear, AZ - 5,247 36,115 41,362 8,388 Nov-18
Industrial Goodyear, AZ 40,193 11,970 50,072 62,042 9,099 Nov-19
Industrial Goodyear, AZ - 1,614 16,222 17,836 2,633 Jan-20
Industrial Goodyear, AZ - 11,732 52,840 64,572 4,654 Nov-21 2021
Industrial Goodyear, AZ - 7,552 29,621 37,173 1,304 Sep-21 2023
Industrial Phoenix, AZ - 8,027 78,258 86,285 7,358 Dec-21
Industrial Phoenix, AZ - 5,366 50,281 55,647 3,674 Apr-22
Industrial Tolleson, AZ - 3,311 16,013 19,324 3,001 Oct-19
Industrial Lakeland, FL - 1,416 20,986 22,402 2,612 Jan-21
Industrial Ocala, FL - 4,113 50,034 54,147 7,667 Jun-20
Industrial Orlando, FL - 1,030 10,869 11,899 5,210 Dec-06
Industrial Plant City, FL - 2,610 48,433 51,043 5,454 Dec-21
Industrial Tampa, FL - 2,160 11,109 13,269 8,489 Jul-88
Industrial Adairsville, GA - 1,465 23,950 25,415 2,182 Dec-21
Industrial Austell, GA - 3,251 51,518 54,769 14,361 Jun-19
Industrial Cartersville, GA - 2,497 42,242 44,739 3,802 Dec-21
Industrial Cartersville, GA - 2,006 33,279 35,285 2,919 Dec-21
Industrial Fairburn, GA - 7,209 44,030 51,239 4,288 Nov-21 2021
Industrial McDonough, GA - 5,441 52,790 58,231 14,062 Aug-17
Industrial McDonough, GA - 3,253 31,387 34,640 6,641 Feb-19
Industrial Pooler, GA - 1,690 30,356 32,046 4,997 Apr-20
Industrial Rincon, GA - 3,775 34,357 38,132 4,941 Sep-20
Industrial Savannah, GA - 2,560 25,812 28,372 3,970 Jun-20
Industrial Savannah, GA - 1,070 7,458 8,528 1,151 Jun-20
Industrial Union City, GA - 2,536 22,830 25,366 4,536 Jun-19
Industrial Edwardsville, IL - 4,593 34,817 39,410 10,120 Dec-16
Industrial Edwardsville, IL - 3,649 41,338 44,987 10,253 Jun-18
Industrial Minooka, IL - 1,788 34,301 36,089 5,614 Jan-20
Industrial Minooka, IL - 3,432 40,949 44,381 7,100 Dec-19
Industrial Minooka, IL - 3,681 45,817 49,498 7,746 Jan-20
Industrial Rantoul, IL - 1,304 32,562 33,866 8,947 Jan-14 2014
Industrial Rockford, IL - 371 4,624 4,995 1,282 Dec-06
Industrial Rockford, IL - 509 5,921 6,430 2,548 Dec-06
Industrial Lafayette, IN - 662 15,814 16,476 5,033 Oct-17
Industrial Lebanon, IN - 2,100 29,996 32,096 8,475 Feb-17
Industrial Whiteland, IN - 741 14,486 15,227 1,413 Oct-21
Industrial Whiteland, IN - 1,991 39,334 41,325 3,952 Oct-21
Industrial Whiteland, IN - 695 13,956 14,651 1,359 Oct-21
Industrial Whitestown, IN - 1,162 11,825 12,987 1,510 Jan-21
Industrial Whitestown, IN - 1,954 17,011 18,965 3,663 Jan-19
Industrial Whitestown, IN - 1,208 12,052 13,260 1,543 Jan-21
Industrial Whitestown, IN - 8,335 80,054 88,389 7,391 Dec-21
Industrial New Century, KS - - 13,424 13,424 4,131 Feb-17
Industrial Walton, KY - 2,010 23,837 25,847 1,986 Feb-22
Industrial Walton, KY - 4,197 41,043 45,240 3,312 Feb-22
Industrial Minneapolis, MN - 1,886 1,922 3,808 677 Sep-12
Industrial Byhalia, MS - 1,006 35,795 36,801 11,789 May-11 2011
Industrial Byhalia, MS - 1,751 31,452 33,203 11,269 Sep-17
Industrial Canton, MS - 5,077 71,289 76,366 29,939 Mar-15
Industrial Olive Branch, MS - 2,500 48,907 51,407 11,159 Apr-18
Industrial Olive Branch, MS - 1,958 38,702 40,660 10,289 Apr-18
Industrial Olive Branch, MS - 2,646 40,446 43,092 7,979 May-19
Industrial Olive Branch, MS - 851 15,630 16,481 3,029 May-19
LXP INDUSTRIAL TRUST AND SUBSIDIARIES
Real Estate and Accumulated Depreciation and Amortization
Schedule III ($000) - continued
Description Location Encumbrances Land and Land Estates Buildings and Improvements Total Accumulated Depreciation and Amortization(1)
Date Acquired Date Constructed
Industrial Shelby, NC - 1,421 18,862 20,283 8,389 Jun-11 2011
Industrial Statesville, NC - 891 21,994 22,885 8,767 Dec-06
Industrial Erwin, NY - 1,648 12,514 14,162 5,424 Sep-12
Industrial Long Island City, NY 20,695 - 42,759 42,759 30,823 Mar-13 2013
Industrial Chillicothe, OH - 735 12,464 13,199 5,175 Oct-11
Industrial Columbus, OH - 2,251 25,349 27,600 2,601 Aug-21
Industrial Etna, OH - 6,536 57,988 64,524 386 Nov-21 2023
Industrial Glenwillow, OH - 2,228 24,530 26,758 10,767 Dec-06
Industrial Hebron, OH - 1,803 15,128 16,931 3,106 Dec-97
Industrial Hebron, OH - 2,052 14,312 16,364 5,098 Dec-01
Industrial Lockbourne, OH - 2,800 16,678 19,478 2,288 Mar-21 2021
Industrial Monroe, OH - 1,109 16,477 17,586 1,855 Dec-21
Industrial Monroe, OH - 544 14,120 14,664 2,617 Sep-19
Industrial Monroe, OH - 3,123 60,702 63,825 11,740 Sep-19
Industrial Monroe, OH - 3,950 88,422 92,372 16,467 Sep-19
Industrial Streetsboro, OH - 2,441 25,351 27,792 13,520 Jun-07
Industrial Bristol, PA - 2,508 15,863 18,371 10,460 Mar-98
Industrial Duncan, SC - 2,819 24,509 27,328 2,646 Jul-21
Industrial Duncan, SC - 1,169 23,070 24,239 2,448 Jul-21
Industrial Duncan, SC - 1,016 18,328 19,344 1,915 Jul-21
Industrial Duncan, SC - 1,705 27,817 29,522 2,971 Jul-21
Industrial Duncan, SC - 1,406 14,282 15,688 2,639 Oct-19
Industrial Duncan, SC - 1,257 13,439 14,696 2,459 Oct-19
Industrial Duncan, SC - 1,615 27,830 29,445 5,747 Apr-19
Industrial Greer, SC - 1,329 22,393 23,722 2,387 Jun-21
Industrial Greer, SC - 6,959 78,405 85,364 13,323 Dec-19
Industrial Greer, SC - 2,376 32,129 34,505 3,437 Jun-21
Industrial Greer, SC - 2,484 62,591 65,075 3,131 Jul-21 2022
Industrial Greer, SC - 1,795 19,881 21,676 133 Jul-21 2023
Industrial Spartanburg,SC - 1,447 23,758 25,205 6,519 Aug-18
Industrial Spartanburg, SC - 1,186 15,820 17,006 2,090 Dec-20
Industrial Antioch, TN - 3,847 17,591 21,438 6,632 May-07
Industrial Cleveland, TN - 1,871 29,743 31,614 8,652 May-17
Industrial Jackson, TN - 1,454 49,134 50,588 13,148 Sep-17
Industrial Lewisburg, TN - 173 10,865 11,038 3,280 May-14
Industrial Millington, TN - 723 20,664 21,387 16,213 Apr-05
Industrial Smyrna, TN - 1,793 93,940 95,733 25,769 Sep-17
Industrial Carrollton, TX - 3,228 16,234 19,462 5,190 Sep-18
Industrial Dallas, TX - 2,420 23,644 26,064 4,621 Apr-19
Industrial Deer Park, TX - 6,489 28,470 34,959 3,312 May-21
Industrial Grand Prairie, TX - 3,166 17,985 21,151 5,069 Jun-17
Industrial Houston, TX - 15,055 57,949 73,004 19,390 Mar-13
Industrial Hutchins, TX - 1,307 8,472 9,779 1,352 May-20
Industrial Lancaster, TX - 3,847 25,037 28,884 3,293 Dec-20
Industrial Missouri City, TX - 14,555 5,895 20,450 5,895 Apr-12
Industrial Northlake, TX - 4,500 71,636 76,136 11,739 Feb-20
Industrial Northlake, TX - 3,938 37,189 41,127 5,129 Dec-20
Industrial Pasadena, TX - 4,272 22,295 26,567 2,567 May-21
Industrial Pasadena, TX - 2,202 17,135 19,337 2,583 Jun-20
Industrial Pasadena, TX - 1,792 9,089 10,881 1,036 May-21
Industrial Pasadena, TX - 4,057 17,810 21,867 4,327 Aug-18
Industrial San Antonio, TX - 1,311 36,644 37,955 10,245 Jun-17
Industrial Chester, VA - 8,544 53,067 61,611 13,391 Dec-18
Industrial Winchester, VA - 1,988 32,536 34,524 8,351 Dec-17
Industrial Winchester, VA - 2,818 24,422 27,240 3,567 Sep-20
Industrial Winchester, VA - 3,823 12,498 16,321 5,857 Jun-07
LXP INDUSTRIAL TRUST AND SUBSIDIARIES
Real Estate and Accumulated Depreciation and Amortization
Schedule III ($000) - continued
Description Location Encumbrances Land and Land Estates Buildings and Improvements Total Accumulated Depreciation and Amortization(1)
Date Acquired Date Constructed
NON-STABILIZED PROPERTIES
Industrial Ruskin, FL - 1,961 6,024 7,985 20 Apr-22 2023
Industrial Lancaster, TX - 2,100 12,918 15,018 284 Jul-23 2023
OTHER PROPERTIES
Other Baltimore, MD - 4,605 - 4,605 - Dec-06
Construction in progress 1,772
Deferred loan costs, net (764)
$ 60,124 $ 348,133 $ 3,424,334 $ 3,774,239 $ 713,377
(1) Depreciation and amortization expense is calculated on a straight-line basis over the following lives:
Building and improvements Up to 40 years
Land estates Up to 51 years
Tenant improvements Shorter of useful life or term of related lease
LXP INDUSTRIAL TRUST AND SUBSIDIARIES
Real Estate and Accumulated Depreciation and Amortization
Schedule III ($000) - continued
The initial cost includes the purchase price paid directly or indirectly by the Company. The total cost basis of the Company's properties at December 31, 2023 for federal income tax purposes was approximately $4.4 billion.
2023 2022 2021
Reconciliation of real estate, at cost:
Balance at the beginning of year $ 3,691,066 $ 3,583,978 $ 3,514,564
Additions during year 164,489 229,962 860,311
Properties sold and impaired during the year (174,466) (161,393) (653,247)
Other reclassifications 93,150 38,519 (137,650)
Balance at end of year $ 3,774,239 $ 3,691,066 $ 3,583,978
Reconciliation of accumulated depreciation and amortization:
Balance at the beginning of year $ 627,027 $ 504,699 $ 684,468
Depreciation and amortization expense 147,617 144,163 138,879
Accumulated depreciation and amortization of properties sold and impaired during year
(100,474) (43,521) (244,751)
Other reclassifications 39,207 21,686 (73,897)
Balance at end of year $ 713,377 $ 627,027 $ 504,699

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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Not applicable.

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ITEM 9A. CONTROLS AND PROCEDURES
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
An evaluation of the effectiveness of the design and operation of our “disclosure controls and procedures” (as defined in Rule 13a-15(e) or 15d-15(e) under the Exchange Act), as of the end of the period covered by this Annual Report, was made under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer who are our Principal Executive Officer and our Principal Financial Officer, respectively. Management, including our Chief Executive Officer and our Chief Financial Officer, has concluded that our disclosure controls and procedures were effective as of December 31, 2023.
Management's Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting and for performing an assessment of the effectiveness of internal control over financial reporting as of December 31, 2023. Our system of internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation and fair presentation of published financial statements in accordance with U.S. generally accepted accounting principles. Our system of internal control over financial reporting includes policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. generally accepted accounting principles and that receipts and expenditures are being made only in accordance with authorizations of our management and the members of our Board of Trustees; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on our financial statements.
All internal control systems, no matter how well designed, have inherent limitations.
Therefore, even those systems determined to be effective can provide only reasonable assurance that financial statements are fairly presented in accordance with U.S. generally accepted accounting principles.
Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2023. In assessing the effectiveness of our internal control over financial reporting, management used as guidance the criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based upon the assessment performed, management has concluded that our internal control over financial reporting was effective as of December 31, 2023.
Our independent registered public accounting firm, Deloitte & Touche LLP, which audited the financial statements included in this Annual Report on Form 10-K that contain the disclosure required by this Item, independently assessed the effectiveness of the Company's internal control over financial reporting. Deloitte & Touche LLP has issued an unqualified report on the Company's internal control over financial reporting, which is included in “Financial Statements and Supplementary Data” in Part II, Item 8 of this Annual Report.
Changes in Internal Control Over Financial Reporting
There were no changes to our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) during the quarter ended December 31, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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ITEM 9B. OTHER INFORMATION
Item 9B. Other Information
During the three months ended December 31, 2023, no trustee or officer of the Company adopted or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408(a) of Regulation S-K.

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ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Item 10. Directors, Executive Officers and Corporate Governance
The information relating to our Code of Business Conduct and Ethics, is included in Part I, Item 1 of this Annual Report. The information relating to our trustees, including the audit committee of our Board of Trustees and our Audit Committee financial expert, and certain information relating to our executive officers, trustees and trustee independence will be in our Definitive Proxy Statement for our 2024 Annual Meeting of Shareholders, which we refer to as our Proxy Statement, and is incorporated herein by reference.

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ITEM 11. EXECUTIVE COMPENSATION
Item 11. Executive Compensation
The information required to be furnished pursuant to this item will be set forth under the appropriate captions in the Proxy Statement, and is incorporated herein by reference.

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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information required to be furnished pursuant to this item will be set forth under the appropriate captions in the Proxy Statement, and is incorporated herein by reference.

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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Item 13. Certain Relationships and Related Transactions, and Director Independence
The information required to be furnished pursuant to this item will be set forth under the appropriate captions in the Proxy Statement, and is incorporated herein by reference. In addition, certain information regarding related party transactions is set forth in note 16 to the Company's Consolidated Financial Statements in “Financial Statements and Supplementary Data” in Part II, Item 8 of this Annual Report.

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ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
Item 14. Principal Accounting Fees and Services
The information required to be furnished pursuant to this item will be set forth under the appropriate captions in the Proxy Statement, and is incorporated herein by reference.
PART IV.

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ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
Item 15. Exhibits, Financial Statement Schedules
Page
(a)(1) Financial Statements 57
(2) Financial Statement Schedules 94
(3) Exhibits 100
Exhibit No. Description
3.1
- Articles of Merger and Amended and Restated Declaration of Trust of the Company, dated December 31, 2006 (filed as Exhibit 3.1 to the Company’s Current Report on Form 8-K filed January 8, 2007)(1)
3.2
- Articles Supplementary Relating to the Reclassification of 8.05% Series B Cumulative Redeemable Preferred Stock, par value $0.0001 per share, and 7.55% Series D Cumulative Redeemable Preferred Stock, par value $0.0001 per share (filed as Exhibit 3.4 to the Company's Current Report on Form 8-K filed November 21, 2013)(1)
3.3
- Articles of Amendment to the Amended and Restated Declaration of Trust, dated as of December 14, 2021 (filed as of Exhibit 3.1 to the Company's Current Report on Form 8-K filed on December 16, 2021)(1)
3.4
- Articles of Amendment to the Amended and Restated Declaration of Trust dated as of May 26, 2022 (filed as Exhibit 3.1 to the Company's Current Report on Form 8-K filed May 27, 2022 (the "05/27/22 8-K")(1)
3.5
- Third Amended and Restated By-laws of the Company (filed as Exhibit 3.1 to the Company's Currently Report on from 8-K filed May 19, 2023)(1)
3.6
- Sixth Amended and Restated Agreement of Limited Partnership of LCIF, dated as of December 30, 2013 (filed as Exhibit 3.25 to the Company's Annual Report on Form 10-K for the year ended December 31, 2013, filed on February 26, 2014)(1)
4.1
- Specimen of Common Shares Certificate of the Company (filed as Exhibit 4.1 to the Company's Annual Report on Form 10-K for year ended December 31, 2021)(1)
4.2
- Form of 6.50% Series C Cumulative Convertible Preferred Stock certificate (filed as Exhibit 4.1 to the Company’s Registration Statement on Form 8A filed December 8, 2004)(1)
4.3
- Amended and Restated Trust Agreement, dated March 21, 2007, among the Company, The Bank of New York Trust Company, National Association (“BONY”), The Bank of New York (Delaware), the Administrative Trustees (as named therein) and the several holders of the Preferred Securities from time to time (filed as Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on March 27, 2007 (the “03/27/2007 8-K”))(1)
4.4
- Junior Subordinated Indenture, dated as of March 21, 2007, between the Company and BONY (filed as Exhibit 4.2 to the 03/27/2007 8-K)(1)
4.5
- Indenture, dated as of June 10, 2013, among the Company, certain subsidiaries of the Company signatories thereto, and U.S. Bank, as trustee (filed as Exhibit 4.1 to the Company's Current Report on Form 8-K filed on June 13, 2013)(1)
4.6
- First Supplemental Indenture, dated as of September 30, 2013, between the Company and U.S. Bank, as trustee (filed as Exhibit 4.2 to the Company's Current Report on Form 8-K filed on October 3, 2013)(1)
4.7
- Indenture, dated as of May 9, 2014, among the Company and U.S. Bank, as trustee (filed as Exhibit 4.1 to the Company's Current Report on Form 8-K filed May 13, 2014)(1)
4.8
- First Supplemental Indenture, dated as of May 20, 2014, among the Company and U.S. Bank, as trustee (filed as Exhibit 4.1 to the Company's Current Report on Form 8-K filed May 20, 2014)(1)
4.9
- Second Supplemental Indenture, filed as of August 28, 2020, between the Company and U.S. Bank, as trustee (filed as Exhibit 4.1 to the Company's Current Report on Form 8-K filed August 28, 2020)(1)
4.10
- Third Supplemental Indenture, dated as of August 30, 2021, among the Company and U.S. Bank, as trustee (filed as Exhibit 4.1 to the Company's Current Report on Form 8-K filed August 30, 2021)(1)
4.11
- Fourth Supplemental Indenture, dated as of November 13, 2023, among the Company and U.S. Bank, as trustee (filed as Exhibit 4.1 to the Company's Current Report on Form 8-K filed November 13, 2023)(1)
4.12
- Description of Securities
10.1
- 1994 Employee Stock Purchase Plan (filed as Exhibit 10.1 to the Company's Annual Report on Form 10-K for the year ended December 31, 2018, filed on March 13, 2019)(1)
10.2
- LXP Industrial Trust Amended 2022 Equity-Based Award Plan (filed as Exhibit 10.1 to the 05/27/2022 8-K)(1, 4)
10.3
- Amended and Restated Rabbi Trust Agreement, originally dated January 26, 1999 (filed as Exhibit 10.2 to the Company's Current Report on Form 8-K filed January 2, 2009)(1, 4)
10.4
- Form of Long-Term Retention Nonvested Share Agreement (filed as Exhibit 10.1 to the Company's Current Report on Form 8-K filed on January 11, 2013)(1, 4)
10.5
- Form of Nonvested Share Agreement (Performance and Service) (filed as Exhibit 10.17 to the Company's Annual Report on Form 10-K for the year ended December 31, 2016, filed on March 1, 2017)(1, 4)
10.6
- Form of LXP Industrial Trust Restricted Share Agreement (Filed as Exhibit 10.1 to the Company's Current Report on Form 8-K filed on January 17, 2023 (the "01/17/23 8-K"))(1, 4))
10.7
- Form of LXP Industrial Trust Nonvested Share Agreement (Filed as Exhibit 10.2 to the 1/17/2023 8-K))(1, 4)
10.8
- Executive Severance Plan (filed as Exhibit 10.3 to the Company's Current Report on Form 8-K (filed on January 19, 2018)(1, 4)
10.9
- Form of Executive Severance Agreement under the Executive Severance Plan adopted January 18, 2018 (filed as Exhibit 10.7 to the Company's Annual Report on Form 10-K for the year ended December 31, 2021, filed on February 24, 2022) (1, 2)
10.10
- Form of Amended and Restated Indemnification Agreement between the Company and certain officers and trustees (filed as Exhibit 10.20 to the Company’s Quarterly Report Form 10-Q for the quarter ended September 30, 2008)(1)
10.11
- Funding Agreement, dated as of July 23, 2006, by and between LCIF and the Company (filed as Exhibit 99.4 to the Company's Current Report on Form 8-K filed on July 24, 2006)(1)
10.12
- Second Amended and Restated Credit Agreement, dated as of July 5, 2022, among the Company, as borrower, each of the financial institutions initially signatory thereto together with their assignees pursuant to Section 12.5 therein and KeyBank, as agent (filed as Exhibit 10.1 to the Company's Current Report on Form 8-K filed on July 11, 2022)(1)
10.13
- First Amendment to Second Amended and Restated Credit Agreement, dated as of November 3, 2023, among the Company, as borrower, KeyBank, as a lender and administrative agent, and the other current and former lenders thereunder, and each of the lenders signatory thereto (filed as Exhibit 10.1 to the Company's Current Report on Form 8-K filed on November 8, 2023)(1)
10.14
- Equity Sales Agreement, dated as of November 27, 2019, between the Company and Jefferies LLC, KeyBanc Capital Markets Inc., Regions Securities LLC, BofA Securities, Inc., Mizuho Securities USA LLC and Evercore Group L.L.C. (filed as Exhibit 1.1 to the Company's Current Report on Form 8-K filed on November 29, 2019)(1)
10.15
- Amendment to Equity Sales Agreement, dated as of February 19, 2021, between the Company and the Sales Agents and Bank of America, N.A. and Mizuho Markets Americas LLC (filed as of Exhibit 1.2 to the Company's Current Report on Form 8-K filed on February 22, 2021)(1)
10.16
- Limited Partnership Agreement of NNN Office JV L.P., dated as of August 31, 2018, among LX JV Investor LLC, as a limited partner, NLSAF LP1 LLC, UHA LP2 LLC, and LXPDK GP LLC (filed as Exhibit 10.4 to the Company’s Current Report on Form 8-K filed on September 5, 2018)(1)
10.17
- Limited Partnership Agreement of NNN MFG Cold JV L.P., dated as of December 29, 2021, among LX JV Investor II LLC, as a limited partner, LXP MFG C L.P., as a limited partner, and LXPDK II GP LLC, as a general partner (filed as Exhibit 10.2 to the Company's Current Report on Form 8-K filed on January 3, 2022)(1)
- List of subsidiaries (2)
- Consent of Deloitte & Touche LLP (2)
- Power of Attorney (included on signature page)
31.1
- Certification of Chief Executive Officer pursuant to rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (2)
31.2
- Certification of Chief Financial Officer pursuant to rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (2)
32.1
- Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (3)
32.2
- Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (3)
- Executive Incentive Compensation Recovery Policy
101.INS - XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document (2, 5)
101.SCH - Inline XBRL Taxonomy Extension Schema (2, 5)
101.CAL - Inline XBRL Taxonomy Extension Calculation Linkbase (2, 5)
101.DEF - Inline XBRL Taxonomy Extension Definition Linkbase Document (2, 5)
101.LAB - Inline XBRL Taxonomy Extension Label Linkbase Document (2, 5)
101.PRE - Inline XBRL Taxonomy Extension Presentation Linkbase Document (2, 5)
(1)Incorporated by reference.
(2)Filed herewith.
(3)This exhibit shall not be deemed “filed” for purposes of Section 11 or 12 of the Securities Act of 1933, as amended (the “Securities Act”), or Section 18 of the Securities Exchanges Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities of those sections, and shall not be part of any registration statement to which it may relate, and shall not be incorporated by reference into any registration statement or other document filed under the Securities Act or the Exchange Act, except as set forth by specific reference in such filing or document.
(4)Management contract or compensatory plan or arrangement.
(5)Attached as Exhibit 101 to this Annual Report on Form 10-K are the following materials, formatted in Inline XBRL (Extensible Business Reporting Language): (i) the Consolidated Balance Sheets at December 31, 2023 and 2022; (ii) the Consolidated Statements of Operations for the years ended December 31, 2023, 2022 and 2021; (iii) the Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 2023, 2022 and 2021; (iv) the Consolidated Statements of Changes in Equity for the years ended December 31, 2023, 2022 and 2021; (v) the Consolidated Statements of Cash Flows for the years ended December 31, 2023, 2022 and 2021; and (vi) Notes to Consolidated Financial Statements, detailed tagged.