LXP Industrial Trust [LXP] Filings

10-Q 1 lxp-20230630.htm 10-Q lxp-20230630

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


☒			Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended June 30, 2023.


☐			Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from _________________ to ________________

Commission File Number 1-12386

LXP INDUSTRIAL TRUST

(Exact name of registrant as specified in its charter)


Maryland			13-3717318
(State or other jurisdiction of incorporation of organization)			(I.R.S. Employer Identification No.)

One Penn Plaza, Suite 4015, New York, NY 10119-4015

(Address of principal executive offices) (zip code)

(212) 692-7200

(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Shares of beneficial interest, par value $0.0001 per share, classified as Common Stock	LXP	New York Stock Exchange
6.50% Series C Cumulative Convertible Preferred Stock, par value $0.0001 per share	LXPPRC	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of the latest practicable date: 292,606,049 common shares of beneficial interest, par value $0.0001 per share, as of August 1, 2023.

TABLE OF CONTENTS


PART I. — FINANCIAL INFORMATION
ITEM 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets						3
Condensed Consolidated Statements of Operations						4
Condensed Consolidated Statements of Comprehensive Income (Loss)						5
Condensed Consolidated Statements of Changes in Equity						6
Condensed Consolidated Statements of Cash Flows						7
Notes to Condensed Consolidated Financial Statements						8
ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations						25
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk						35
ITEM 4. Controls and Procedures						35
PART II — OTHER INFORMATION
ITEM 1. Legal Proceedings						36
ITEM 1A. Risk Factors						36
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds						36
ITEM 3. Defaults Upon Senior Securities						36
ITEM 4. Mine Safety Disclosures						36
ITEM 5. Other Information						36
ITEM 6. Exhibits						37
SIGNATURES						39

WHERE YOU CAN FIND MORE INFORMATION:

We file and furnish annual, quarterly and current reports, proxy statements and other information with the Securities and Exchange Commission, which we refer to as the SEC. We file and furnish information electronically with the SEC. The SEC maintains an Internet site that contains reports, proxy and information statements and other information regarding issuers that file or furnish electronically with the SEC. The address of the SEC's Internet site is http://www.sec.gov. We also maintain a web site at http://www.lxp.com through which you can obtain copies of documents that we file or furnish with the SEC. The contents of that web site are not incorporated by reference in or otherwise a part of this Quarterly Report on Form 10-Q or any other document that we file or furnish with the SEC.

Table of Contents

PART I. - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

LXP INDUSTRIAL TRUST AND CONSOLIDATED SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited and in thousands, except share and per share data)


	June 30, 2023		December 31, 2022

Assets:
Real estate, at cost	$	3,688,245	$	3,691,066
Real estate - intangible assets	326,422		328,607
Land held for development	84,591		84,412
Investments in real estate under construction	372,342		361,924
Real estate, gross	4,471,600		4,466,009
Less: accumulated depreciation and amortization	857,750		800,470
Real estate, net	3,613,850		3,665,539
Assets held for sale	49,644		66,434
Right-of-use assets, net	21,937		23,986
Cash and cash equivalents	23,161		54,390
Restricted cash	124		116
Investments in non-consolidated entities	50,683		58,206
Deferred expenses, net	31,565		25,207
Investment in a sales-type lease, net (allowance for credit loss $62 in 2023 and $93 in 2022)	62,331		61,233
Rent receivable – current	4,970		3,030
Rent receivable – deferred	76,620		71,392
Other assets	27,564		24,314
Total assets	$	3,962,449	$	4,053,847

Liabilities and Equity:
Liabilities:
Mortgages and notes payable, net	$	66,353	$	72,103

Term loan payable, net	299,209		298,959
Senior notes payable, net	989,977		989,295
Trust preferred securities, net	127,744		127,694
Dividends payable	38,259		38,416
Liabilities held for sale	1,703		1,150
Operating lease liabilities	22,805		25,118
Accounts payable and other liabilities	64,399		74,261
Accrued interest payable	8,735		9,181
Deferred revenue - including below-market leases, net	10,350		11,452
Prepaid rent	14,192		15,215
Total liabilities	1,643,726		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; 1,935,400 shares issued and outstanding	94,016		94,016
Common shares, par value $0.0001 per share; authorized 600,000,000 shares, 292,581,929 and 291,719,310 shares issued and outstanding in 2023 and 2022, respectively	29		29
Additional paid-in-capital	3,322,499		3,320,087
Accumulated distributions in excess of net income	(1,151,924)		(1,079,087)
Accumulated other comprehensive income	16,200		17,689
Total shareholders’ equity	2,280,820		2,352,734
Noncontrolling interests	37,903		38,269
Total equity	2,318,723		2,391,003
Total liabilities and equity	$	3,962,449	$	4,053,847

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

Table of Content

LXP INDUSTRIAL TRUST AND CONSOLIDATED SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited and in thousands, except share and per share data)


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Gross revenues:
Rental revenue	$	85,065	$	77,939	$	168,482	$	156,475
Other revenue	1,985		1,836		3,643		3,578
Total gross revenues	87,050		79,775		172,125		160,053
Expense applicable to revenues:
Depreciation and amortization	(45,993)		(45,193)		(91,734)		(89,699)
Property operating	(15,745)		(13,702)		(30,988)		(28,318)
General and administrative	(9,010)		(9,296)		(18,252)		(20,033)

Non-operating income	143		79		337		111
Interest and amortization expense	(10,144)		(10,821)		(21,537)		(21,503)

Impairment charges	(12,967)		(1,829)		(16,490)		(1,829)
Change in allowance for credit loss	110		—		31		—
Gains on sales of properties	—		27,855		7,879		28,110
Selling profit from sales-type lease	—		9,314		—		9,314
Income (loss) before provision for income taxes and equity in earnings (losses) of non-consolidated entities	(6,556)		36,182		1,371		36,206
Provision for income taxes	(210)		(263)		(426)		(680)
Equity in earnings (losses) of non-consolidated entities	(1,014)		5,619		2,590		16,920








Net income (loss)	(7,780)		41,538		3,535		52,446
Less net income attributable to noncontrolling interests	(268)		(240)		(417)		(526)
Net income (loss) attributable to LXP Industrial Trust shareholders	(8,048)		41,298		3,118		51,920
Dividends attributable to preferred shares – Series C	(1,573)		(1,573)		(3,145)		(3,145)
Allocation to participating securities	(62)		(58)		(134)		(110)
Net income (loss) attributable to common shareholders	$	(9,683)	$	39,667	$	(161)	$	48,665

Net income (loss) attributable to common shareholders - per common share basic	$	(0.03)	$	0.14	$	—	$	0.17


Weighted-average common shares outstanding – basic	290,186,934		283,568,078		290,134,015		283,604,072

Net income (loss) attributable to common shareholders - per common share diluted	$	(0.03)	$	0.14	$	—	$	0.17


Weighted-average common shares outstanding – diluted	291,015,537		285,436,441		290,964,350		287,687,397

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

Table of Content

LXP INDUSTRIAL TRUST AND CONSOLIDATED SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited and in thousands)


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Net income (loss)	$	(7,780)	$	41,538	$	3,535	$	52,446
Other comprehensive income (loss):

Change in unrealized gain (loss) on interest rate swaps, net	2,139		3,550		(1,051)		15,816
Company's share of other comprehensive loss of non-consolidated entities	(108)		—		(438)		—
Other comprehensive income (loss)	2,031		3,550		(1,489)		15,816
Comprehensive income (loss)	(5,749)		45,088		2,046		68,262
Comprehensive income attributable to noncontrolling interests	(268)		(240)		(417)		(526)
Comprehensive income (loss) attributable to LXP Industrial Trust shareholders	$	(6,017)	$	44,848	$	1,629	$	67,736

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

Table of Content

LXP INDUSTRIAL TRUST AND CONSOLIDATED SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(Unaudited and in thousands, except share and per share data)


			LXP Industrial Trust Shareholders
Three months ended June 30, 2023	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 March 31, 2023	$	2,360,762	1,935,400	$	94,016	292,557,721	$	29	$	3,320,185	$	(1,105,875)	$	14,169	$	38,238
Issuance of partnership interest in real estate	190		—	—		—	—		—		—		—		190
Redemption of noncontrolling OP units for common shares	—		—	—		1,314	—		7		—		—		(7)
Issuance of common shares and deferred compensation amortization, net	2,307		—	—		22,894	—		2,307		—		—		—



Dividends/distributions ($0.125 per common share)	(38,787)		—	—		—	—		—		(38,001)		—		(786)
Net income (loss)	(7,780)		—	—		—	—		—		(8,048)		—		268
Other comprehensive income	2,139		—	—		—	—		—		—		2,139		—

Company's share of other comprehensive loss of non-consolidated entities	(108)		—	—		—	—		—		—		(108)		—
Balance June 30, 2023	$	2,318,723	1,935,400	$	94,016	292,581,929	$	29	$	3,322,499	$	(1,151,924)	$	16,200	$	37,903


Three Months Ended June 30, 2022

Balance March 31, 2022	$	2,320,482	1,935,400	$	94,016	287,871,649	$	29	$	3,261,770	$	(1,074,998)	$	6,008	$	33,657
Issuance of partnership interest in real estate	1,672		—	—		—	—		—		—		—		1,672
Redemption of noncontrolling OP units for common shares	—		—	—		13,524	—		73		—		—		(73)

Issuance of common shares and deferred compensation amortization, net	1,587		—	—		12,203	—		1,587		—		—		—

Repurchase of common shares	(73,718)		—	—		(6,098,026)	(1)		(73,717)		—		—		—

Forfeiture of employee common shares	8		—	—		(128,913)	—		—		8		—		—
Dividends/distributions ($0.12 per common share)	(35,469)		—	—		—	—		—		(34,716)		—		(753)
Net income	41,538		—	—		—	—		—		41,298		—		240
Other comprehensive income	3,550		—	—		—	—		—		—		3,550		—

Balance June 30, 2022	$	2,259,650	1,935,400	$	94,016	281,670,437	$	28	$	3,189,713	$	(1,068,408)	$	9,558	$	34,743

LXP INDUSTRIAL TRUST AND CONSOLIDATED SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(Unaudited and in thousands, except share and per share data)


			LXP Industrial Trust Shareholders
Six Months Ended June 30, 2023	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	296		—	—		—	—		—		—		—		296
Redemption of noncontrolling OP units for common shares	—		—	—		4,886	—		25		—		—		(25)

Issuance of common shares and deferred compensation amortization, net	4,463		—	—		1,239,060	—		4,463		—		—		—

Repurchase of common shares to settle tax obligations	(2,076)		—	—		(204,780)	—		(2,076)		—		—		—
Forfeiture of employee common shares	—		—	—		(176,547)	—		—		—		—		—
Dividends/distributions ($0.25 per common share)	(77,009)		—	—			—		—		(75,955)		—		(1,054)
Net income	3,535		—	—		—	—		—		3,118		—		417
Other comprehensive loss	(1,051)		—	—		—	—		—		—		(1,051)		—
Company's share of other comprehensive loss of non-consolidated entities	(438)		—	—		—	—		—		—		(438)		—

Balance June 30, 2023	2,318,723		1,935,400	$	94,016	292,581,929	$	29	$	3,322,499	$	(1,151,924)	$	16,200	$	37,903


Six Months Ended June 30, 2022

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	5,781		—	—		—	—		—		—		—		5,781
Redemption of noncontrolling OP units for common shares	—		—	—		20,232	—		109		—		—		(109)
Purchase of noncontrolling interest in consolidated joint venture	(27,958)		—	—		—	—		(25,058)		—		—		(2,900)
Issuance of common shares and deferred compensation amortization, net	42,159		—	—		4,535,376	1		42,158		—		—		—
Repurchase of common shares	(73,718)		—	—		(6,098,026)	(1)		(73,717)		—		—		—
Repurchase of common shares to settle tax obligations	(6,285)		—	—		(410,958)	—		(6,285)		—		—		—
Forfeiture of employee common shares	8		—	—		(128,913)	—		—		8		—		—
Dividends/distributions ($0.24 per common share)	(71,827)		—	—		—	—		—		(70,902)		—		(925)
Net income	52,446		—	—		—	—		—		51,920		—		526
Other comprehensive income	15,816		—	—		—	—		—		—		15,816		—

Balance June 30, 2022	$	2,259,650	1,935,400	$	94,016	281,670,437	$	28	$	3,189,713	$	(1,068,408)	$	9,558	$	34,743

Table of Content

LXP INDUSTRIAL TRUST AND CONSOLIDATED SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited and in thousands)


	Six Months Ended June 30,
	2023		2022
Net cash provided by operating activities:	$	92,644	$	95,207
Cash flows from investing activities:
Acquisition of real estate, including intangible assets	—		(131,276)
Investment in real estate under construction	(62,650)		(135,826)
Capital expenditures	(7,910)		(15,798)
Net proceeds from sale of properties	27,338		54,523
Principal payments on loans receivable	1,462		14
Investments in non-consolidated entities	(485)		(178)
Distributions from non-consolidated entities in excess of accumulated earnings	5,536		15,609
Deferred leasing costs	(1,808)		(2,582)
Change in real estate deposits, net	(364)		(1,598)
Net cash used in investing activities	(38,881)		(217,112)
Cash flows from financing activities:
Dividends to common and preferred shareholders	(76,112)		(72,749)

Principal amortization payments	(5,893)		(5,584)

Revolving credit facility borrowings	50,000		155,000
Revolving credit facility payments	(50,000)		(35,000)




Cash contributions from noncontrolling interests	296		5,781
Cash distributions to noncontrolling interests	(1,054)		(925)
Repurchases to settle tax obligations	(2,076)		(6,285)
Purchase of noncontrolling interest	—		(27,958)





Issuance of common shares, net	(145)		38,497
Repurchase of common shares	—		(69,973)

Net cash used in financing activities	(84,984)		(19,196)
Change in cash, cash equivalents and restricted cash	(31,221)		(141,101)

Cash, cash equivalents and restricted cash, at beginning of period	54,506		191,027
Cash, cash equivalents and restricted cash, at end of period	$	23,285	$	49,926

Reconciliation of cash, cash equivalents and restricted cash:
Cash and cash equivalents at beginning of period	$	54,390	$	190,926
Restricted cash at beginning of period	116		101
Cash, cash equivalents and restricted cash at beginning of period	$	54,506	$	191,027

Cash and cash equivalents at end of period	$	23,161	$	49,817
Restricted cash at end of period	124		109
Cash, cash equivalents and restricted cash at end of period	$	23,285	$	49,926

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

Table of Contents

LXP INDUSTRIAL TRUST AND CONSOLIDATED SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2023 and 2022

(Unaudited and dollars in thousands, except share/unit and per 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 June 30, 2023, the Company had ownership interests in approximately 116 consolidated real estate properties, located in 20 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., 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.

The unaudited condensed consolidated financial statements contained in this Quarterly Report on Form 10-Q (this “Quarterly Report”) for the three and six months ended June 30, 2023 have been prepared by the Company in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and the applicable rules and regulations of the Securities and Exchange Commission (“SEC”). Accordingly, they do not include all information and footnotes required by GAAP for complete financial statements. However, in the opinion of management, the interim financial statements include all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of the results of the periods presented. Interim results are not necessarily indicative of the results that may be expected for the full year. These unaudited condensed consolidated financial statements should be read in conjunction with the Company's audited consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2022 filed with the SEC on February 16, 2023 (“Annual Report”).

Basis of Presentation and Consolidation. The Company's unaudited condensed consolidated financial statements are prepared on the accrual basis of accounting in accordance with 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.

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LXP INDUSTRIAL TRUST AND CONSOLIDATED SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2023 and 2022

(Unaudited and dollars in thousands, except share/unit and per share/unit data)

As of June 30, 2023, the Company had interests in seven consolidated joint ventures with developers, consisting of five ongoing 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 unaudited condensed 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. Lepercq Corporate Income Fund L.P. ("LCIF") is a consolidated VIE and the Company, as of June 30, 2023, had an approximate 99% ownership interest.

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 unaudited condensed consolidated balance sheets as of June 30, 2023 and December 31, 2022:


	June 30, 2023		December 31, 2022
Real estate, net	$	1,032,057	$	1,027,009
Total assets	$	1,152,674	$	1,125,558

Total liabilities	$	43,364	$	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).

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 unaudited condensed 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 estimated credit losses for investments in sales-type leases and the useful lives of long-lived assets. Actual results could differ materially from those estimates.

Recently Issued Accounting Guidance. In March 2020, the Financial Accounting Standards Board ("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.

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LXP INDUSTRIAL TRUST AND CONSOLIDATED SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2023 and 2022

(Unaudited and dollars in thousands, except share/unit and per share/unit data)

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 unaudited condensed consolidated financial statements. The Company's Trust Preferred Securities transitioned from LIBOR to SOFR after June 30, 2023. The Company does not expect a material impact to the financial statements as a result of the transition.

(2)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 the three and six months ended June 30, 2023 and 2022:


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
BASIC


Net income (loss) attributable to common shareholders	$	(9,683)	$	39,667	$	(161)	$	48,665
Weighted-average number of common shares outstanding - basic	290,186,934		283,568,078		290,134,015		283,604,072

Net income (loss) attributable to common shareholders - per common share basic	$	(0.03)	$	0.14	$	—	$	0.17

DILUTED
Net income (loss) attributable to common shareholders - basic	$	(9,683)	$	39,667	$	(161)	$	48,665


Impact of assumed conversions	(81)		47		(77)		136
Net income (loss) attributable to common shareholders	$	(9,764)	$	39,714	$	(238)	$	48,801

Weighted-average common shares outstanding - basic	290,186,934		283,568,078		290,134,015		283,604,072
Effect of dilutive securities:
Unvested share-based payment awards	—		257,371		—		668,130
Shares issuable under forward sales agreements	—		750,944		—		2,549,683


Operating partnership units	828,603		860,048		830,335		865,512

Weighted-average common shares outstanding - diluted	291,015,537		285,436,441		290,964,350		287,687,397


Net income (loss) attributable to common shareholders - per common share diluted	$	(0.03)	$	0.14	$	—	$	0.17

For per common share amounts, generally 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.

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LXP INDUSTRIAL TRUST AND CONSOLIDATED SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2023 and 2022

(Unaudited and dollars in thousands, except share/unit and per share/unit data)

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 inclusion of such shares would be anti-dilutive:


	Three Months Ended June 30,		Six Months Ended June 30,
	2023	2022	2023	2022
Unvested share-based payment awards	135,172	10,140	131,522	34,762
Preferred shares - Series C	4,710,570	4,710,570	4,710,570	4,710,570

(3)Investments in Real Estate

The Company completed and placed in service the following warehouse/distribution facility during the six months ended June 30, 2023:


Market	Placed in Service Date	Initial Cost Basis		Lease Expiration Date	Land		Building and Improvements
Phoenix, Arizona(1)	March 2023	$	37,118	08/2033	$	7,552	$	29,566

(1) Initial basis excludes certain remaining costs, including developer partner promote, if any.

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 June 30, 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.	Estimated Project Cost(1)		GAAP Investment Balance as of 6/30/2023(2)		LXP Amount Funded as of 6/30/2023(3)		Actual/Estimated Base Building Completion Date	% Leased as of 6/30/2023		Estimated Placed in Service Date
Development Projects Leased:
ETNA Cubes(95%)	1	Columbus, OH	1,074,840	$	76,600	$	63,370	$	66,148	3Q 2022	100	%	4Q 2023
Cotton 303 (93%)	1	Phoenix, AZ	488,400	55,300		39,182		32,652		3Q 2023	100	%	1Q 2024
	2		1,563,240	$	131,900	$	102,552	$	98,800
Development Projects Available for Lease:
Ocala (80%)	1	Central Florida	1,085,280	$	83,200	$	77,209	$	67,984	1Q 2023	—	%	—
Mt. Comfort (80%)	1	Indianapolis, IN	1,053,360	65,900		63,790		55,312		1Q 2023	—	%	—
Smith Farms (90%)	2	Greenville-Spartanburg, SC	1,396,772	101,600		92,213		79,975		2Q 2023	—	%	—
South Shore (100%)	2	Central Florida	270,885	42,500		36,578		30,313		2Q 2023 - 3Q 2023	—	%	—
	6		3,806,297	$	293,200	$	269,790	$	233,584

	8		5,369,537	$	425,100	$	372,342	$	332,384

(1) Estimated project cost includes estimated tenant improvements and leasing costs and excludes potential developer partner promote, if any.

(2) Excludes leasing costs.

(3) Excludes noncontrolling interests' share.

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LXP INDUSTRIAL TRUST AND CONSOLIDATED SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2023 and 2022

(Unaudited and dollars in thousands, except share/unit and per share/unit data)

As of June 30, 2023, the Company's aggregate investment in development arrangements was $372,342, which included capitalized interest of $5,194 for the six months ended June 30, 2023 and is presented as investments in real estate under construction in the accompanying unaudited condensed consolidated balance sheet. For the six months ended June 30, 2022, capitalized interest for development arrangements was $2,800.

As of June 30, 2023, the details of the land held for industrial development are as follows (in $000's, except acres):


Project (% owned)	Market	Approx. Developable Acres	GAAP Investment Balance as of 6/30/2023		LXP Amount Funded as of 6/30/2023 (1)

Reems & Olive (95.5%)	Phoenix, AZ	320	$	77,538	$	74,177
Mt. Comfort Phase II (80%)	Indianapolis, IN	116	5,321		4,266
ATL Fairburn JV (100%)	Atlanta, GA	14	1,732		1,737
		450	$	84,591	$	80,180

(1) Excludes noncontrolling interests' share.

(4)Dispositions and Impairment

During the six months ended June 30, 2023 and 2022, the Company disposed of its interests in various properties for an aggregate gross disposition price of $27,910 and $55,395, respectively, and recognized aggregate gains on sales of properties of $7,879 and $28,110, respectively.

The Company had four and three properties classified as held for sale at June 30, 2023 and December 31, 2022, respectively. Assets and liabilities of the held for sale properties at June 30, 2023 and December 31, 2022 consisted of the following:


	June 30, 2023		December 31, 2022
Assets:
Real estate, at cost	$	59,918	$	131,557
Real estate, intangible assets	1,777		9,942
Accumulated depreciation and amortization	(14,119)		(76,205)

Other	2,068		1,140
	$	49,644	$	66,434

Liabilities:
Accounts payable and liabilities	$	407	$	637
Deferred revenue	241		143
Prepaid rent	1,055		370
	$	1,703	$	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 the six months ended June 30, 2023, the Company recognized aggregate impairment charges of $16,490 due to potential property sales. The Company recognized impairment charges of $1,829 on real estate during the six months ended June 30, 2022 due to vacancy at the property.

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LXP INDUSTRIAL TRUST AND CONSOLIDATED SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2023 and 2022

(Unaudited and dollars in thousands, except share/unit and per share/unit data)

(5)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 June 30, 2023 and December 31, 2022, aggregated by the level in the fair value hierarchy within which those measurements fall:


	Balance		Fair Value Measurements Using
Description	June 30, 2023		(Level 1)		(Level 2)		(Level 3)
Interest rate swap assets	$	15,268	$	—	$	15,268	$	—
Impaired real estate assets(1)	$	34,315	$	—	$	25,145	$	9,170


	Balance		Fair Value Measurements Using
Description	December 31, 2022		(Level 1)		(Level 2)		(Level 3)
Interest rate swap assets	$	16,318	$	—	$	16,318	$	—

(1) Represents non-recurring fair value measurement. The fair value is calculated as of the impairment date. The fair value of $25,145 was based on an observable contract to sell the asset, less estimated costs to sell. The Company also estimated the fair value of $9,170 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.

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 June 30, 2023 and December 31, 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 June 30, 2023 and December 31, 2022:


	As of June 30, 2023				As of December 31, 2022
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Assets

Investment in a sales-type lease, net	$	62,331	$	63,840	$	61,233	$	60,984

Liabilities
Debt	$	1,483,283	$	1,289,776	$	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 payable 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

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LXP INDUSTRIAL TRUST AND CONSOLIDATED SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2023 and 2022

(Unaudited and dollars in thousands, except share/unit and per share/unit data)

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, Accounts Receivable and Accounts Payable. The Company estimates that the fair value of cash equivalents, restricted cash, accounts receivable and accounts payable approximates carrying value due to the relatively short maturity of the instruments.

(6)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				Equity in earnings (losses) of non-consolidated entities
Investment	June 30, 2023	June 30, 2023		December 31, 2022		June 30, 2023		June 30, 2022
NNN MFG Cold JV L.P. ("MFG Cold JV")(1)	20%	$	22,617	$	26,592	$	(1,597)	$	(600)
NNN Office JV L.P. ("NNN JV")(2)	20%	12,637		12,900		(263)		17,521
Etna Park 70 LLC(3)	90%	13,333		12,975		(86)		(49)
Etna Park East LLC(4)	90%	2,096		2,126		(72)		(48)
BSH Lessee L.P.(5)	25%	—		3,613		4,608		96
		$	50,683	$	58,206	$	2,590	$	16,920

(1) MFG Cold JV is a joint venture formed in 2021 that owns special purpose industrial properties formerly owned by the Company.

(2) NNN JV is a joint venture formed in 2018 that owns office properties formerly owned by the Company. During 2022, NNN JV sold three assets and the Company recognized its share of aggregate gains on sale of $22,896 within equity in earnings of non-consolidated entities within its unaudited condensed consolidated statements of operations.

(3) Joint venture formed in 2017 with a developer entity to acquire a parcel of land. The joint venture commenced development of a 250,000 square foot speculative development project for an estimated cost of $29,000. Subsequent to June 30, 2023, LXP entered into an agreement to fund all of the construction costs, inclusive of its partner's share, to complete the Etna Park 70 industrial facility.

(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 unaudited condensed 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. Advisory fees earned from these non-consolidated investments for the six months ended June 30, 2023 and 2022 were $2,208 and $2,875, respectively.

(7)Debt

The Company had the following mortgages and notes payable outstanding as of June 30, 2023 and December 31, 2022:


	June 30, 2023		December 31, 2022
Mortgages and notes payable	$	67,260	$	73,154
Unamortized debt issuance costs	(907)		(1,051)
Mortgage notes payable, net	$	66,353	$	72,103

Interest rates, including imputed rates on mortgages and notes payable, ranged from 3.5% to 4.3%, at June 30, 2023 and December 31, 2022, respectively, and all mortgages and notes payable mature between 2023 and 2031 as of June 30, 2023. The weighted-average interest rate at June 30, 2023 and December 31, 2022 was approximately 4.0%, respectively.

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LXP INDUSTRIAL TRUST AND CONSOLIDATED SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2023 and 2022

(Unaudited and dollars in thousands, except share/unit and per share/unit data)

The Company had the following senior notes outstanding as of June 30, 2023 and December 31, 2022:


Issue Date	June 30, 2023		December 31, 2022		Interest Rate		Maturity Date	Issue Price
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	%
	998,932		998,932
Unamortized debt discount	(3,016)		(3,228)
Unamortized debt issuance costs	(5,939)		(6,409)
Senior notes payable, net	$	989,977	$	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 any potential make-whole premium.

The Company has an unsecured credit agreement with KeyBank National Association, as agent. The maturity dates and interest rates as of June 30, 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 2025	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 0.725% to 1.400%, and the revolving credit facility allows for further reductions upon the achievement of to-be-determined sustainability metrics. At June 30, 2023, the Company had no borrowings outstanding and availability of $600,000, subject to covenant compliance.

(2) The Term SOFR portion of the interest rate was swapped to obtain a current fixed rate of 2.722% per annum. The aggregate unamortized debt issuance costs for the term loan was $791 and $1,041 as of June 30, 2023 and December 31, 2022, respectively.

The Company was compliant with all applicable financial covenants contained in its corporate-level debt agreements at June 30, 2023.

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 LIBOR plus 170 basis points through maturity. The interest rate at June 30, 2023 was 6.999%. As of June 30, 2023 and December 31, 2022, there was $129,120 original principal amount of Trust Preferred Securities outstanding and $1,376 and $1,426, respectively, of unamortized debt issuance costs. The variable rate transitioned from LIBOR to SOFR after June 30, 2023.

The Company capitalized $5,436 and $2,839 of interest expense for the six months ended June 30, 2023 and 2022, respectively.

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LXP INDUSTRIAL TRUST AND CONSOLIDATED SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2023 and 2022

(Unaudited and dollars in thousands, except share/unit and per share/unit data)

(8) 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 the six months ended June 30, 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 coterminous with the maturity of the term loan in January 2025. During the next 12 months, the Company estimates that an additional $10,664 will be reclassified as a decrease in interest expense if the swaps remain outstanding.

As of June 30, 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 unaudited condensed consolidated balance sheets:

As of June 30, 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

15,268

Other Assets

16,318

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LXP INDUSTRIAL TRUST AND CONSOLIDATED SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2023 and 2022

(Unaudited and dollars in thousands, except share/unit and per share/unit data)

The table below presents the effect of the Company's derivative financial instruments on the unaudited condensed consolidated statements of operations for the six months ended June 30, 2023 and 2022.


Derivatives in Cash Flow	Amount of Gain Recognized in OCI on Derivatives June 30,				Amount of (Income) Loss Reclassified from Accumulated OCI into Income(1) June 30,
Hedging Relationships	2023		2022		2023		2022
Interest Rate Swaps	$	3,668	$	13,895	$	(4,719)	$	1,921
The Company's share of non-consolidated entity's interest rate cap	220		—		(658)		—
Total	$	3,888	$	13,895	$	(5,377)	$	1,921

(1) Amounts reclassified from accumulated other comprehensive income (loss) to interest expense within the unaudited condensed consolidated statements of operations.

Total interest expense presented in the unaudited condensed consolidated statements of operations, in which the effects of cash flow hedges are recorded was $21,537 and $21,503 for the six months ended June 30, 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 June 30, 2023, the Company had not posted any collateral related to the agreements.

(9) Lease Accounting

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.

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.

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LXP INDUSTRIAL TRUST AND CONSOLIDATED SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2023 and 2022

(Unaudited and dollars in thousands, except share/unit and per share/unit data)

There were no write offs for the six months ended June 30, 2023. During the six months ended June 30, 2022, the Company wrote off an aggregate of $198, accounts receivable, net, relating to certain tenants suffering from the current economic conditions.

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 unaudited condensed 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 six months ended June 30, 2023, the Company incurred no costs that were not incremental to the execution of leases. For the six months ended June 30, 2022, the Company incurred $34 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 June 30, 2023, the Company had one lease that qualified as a sales-type lease.

The Company has one ground lease for a 100-acre industrial development land parcel located in the Phoenix, Arizona market that 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. For the six months ended June 30, 2023, the interest income earned from sales-type leases of $3,681 is included in rental revenue in the unaudited condensed consolidated statements of operations. The Company earned no interest income from sales-type leases in 2022.

In May 2022, one of the Company's tenants exercised the purchase option for $28,000 in its operating lease with a sale date of August 2022. The purchase option was not reasonably certain to be exercised at lease inception, resulting in a modification of the operating lease. As a result of this modification to the lease, the Company re-evaluated the lease classification and classified the lease as a sales-type lease. The Company recorded $28,000 in Investment in a sales-type lease and derecognized $17,292 from Real estate, net, $619 from Deferred expenses and $775 from Rent receivable-deferred on its unaudited condensed consolidated balance sheet. The Company recognized $9,314 in selling profit from sales-type leases in its unaudited condensed consolidated statements of operations for the six months ended June 30, 2022. The remaining rent payments under the lease in 2022 in addition to the purchase option price was $371.

Rental Revenue Classification. The following table presents the Company’s classification of rental revenue for its operating leases and sales-type lease for the three and six months ended June 30, 2023 and 2022:


	Three Months Ended June 30,				Six Months Ended June 30,
Classification	2023		2022		2023		2022
Fixed	$	69,049	$	67,015	$	137,136	$	133,997
Sales-type lease income	1,848		—		3,681		—
Variable(1)	14,168		10,924		27,665		22,478
Total	$	85,065	$	77,939	$	168,482	$	156,475

(1) Primarily comprised of tenant reimbursements.

Table of Contents

LXP INDUSTRIAL TRUST AND CONSOLIDATED SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2023 and 2022

(Unaudited and dollars in thousands, except share/unit and per share/unit data)

Future fixed rental receipts for operating and sales-type leases, assuming no new or re-negotiated leases as of June 30, 2023 were as follows:


	Operating		Sales-Type
2023 - remainder	$	133,883	$

LXP Industrial Trust [LXP] Filings

LXP Industrial Trust [LXP-PC] Filings