UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
For the fiscal year ended December 31 , 2022
or
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
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of incorporation of organization) | (I.R.S. Employer Identification No.) | ||||
(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 | Name of each exchange on which registered | ||||||
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☒ No ☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒
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 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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. 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 an 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.
| ☒ | Accelerated filer | ☐ | Non-accelerated filer | ☐ | Smaller reporting company | Emerging growth company | |||||||||||||||||||||||
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. Yes ☐ No ☒
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). Yes ☐ No ☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒
The aggregate market value of the shares of beneficial interest, par value $0.0001 per share, classified as common stock (“common shares”) of LXP Industrial Trust held by non-affiliates as of June 30, 2022, which was the last business day of the registrant's most recently completed second fiscal quarter, was $2,963,617,542 based on the closing price of the common shares on the New York Stock Exchange as of that date, which was $10.74 per share.
Number of common shares outstanding as of February 14, 2023 was 292,554,149 .
DOCUMENTS INCORPORATED BY REFERENCE
Certain information contained in the Definitive Proxy Statement for LXP Industrial Trust's Annual Meeting of Shareholders, or an amendment on Form 10-K/A, is incorporated by reference in this Annual Report on Form 10-K in response to Part III, Items 10, 11, 12, 13 and 14, which will be filed with the Securities and Exchange Commission not later than 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K.
TABLE OF CONTENTS
| Description | Page | ||||||||||
| PART I | |||||||||||
| PART II | |||||||||||
| PART III | |||||||||||
| PART IV | |||||||||||
2
Introduction
Unless stated otherwise or the context otherwise requires, the “Company,” the “Trust,” “LXP,” “we,” “our,” and “us” refer collectively to LXP Industrial Trust and its consolidated subsidiaries. All of the Company's interests in properties are held, and all property operating activities are conducted, through special purpose entities, which we refer to as property owner subsidiaries or lender subsidiaries and are separate and distinct legal entities, but in some instances are consolidated for financial statement purposes and/or disregarded for income tax purposes.
When we use the term “REIT,” we mean real estate investment trust. All references to 2022, 2021 and 2020 refer to our fiscal years ended December 31, 2022, December 31, 2021 and December 31, 2020, respectively.
When we use the term “GAAP,” we mean United States generally accepted accounting principles in effect from time to time.
When we use the term “common shares,” we mean our shares of beneficial interest par value $0.0001, classified as common stock. When we use the term “Series C Preferred Shares,” we mean our beneficial interest classified as 6.50% Series C Convertible Preferred Stock.
When we use the term “base rent,” we mean GAAP rental revenue and ancillary income, but excluding billed tenant reimbursements and lease termination income.
When we use the term “Annualized Cash Base Rent,” (“ABR”) we mean the period end cash base rent multiplied by 12. For leases with free rent periods or that were signed prior to the end of the quarter but have not commenced, the first cash base rent payment is multiplied by 12.
When we use “Stabilized Portfolio,” we mean all real estate properties other than acquired or developed properties that have not achieved 90% occupancy within one-year of acquisition or substantial completion. Non-stabilized, substantially completed development projects are classified within investments in real estate under construction.
The terms “FFO,” “Adjusted Company FFO,” and “NOI” are defined in “Management's Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of this Annual Report.
Cautionary Statements Concerning Forward-Looking Statements
This Annual Report, together with other statements and information publicly disseminated by us, contain certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. We intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995 and include this statement for purposes of complying with these safe harbor provisions. Forward-looking statements, which are based on certain assumptions and describe our future plans, strategies and expectations, are generally identifiable by use of the words “believes,” “expects,” “intends,” “anticipates,” “estimates,” “projects,” “may,” “plans,” “predicts,” “will,” “will likely result” or similar expressions. Readers should not rely on forward-looking statements since they involve known and unknown risks, uncertainties and other factors which are, in some cases, beyond our control and which could materially affect actual results, performances or achievements. In particular, among the factors that could cause actual results, performances or achievements to differ materially from current expectations, strategies or plans include, among others, those risks discussed below under “Risk Factors” in Part I, Item 1A of this Annual Report and under “Management's Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of this Annual Report. Except as required by law, we undertake no obligation to publicly release the results of any revisions to these forward-looking statements which may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. Accordingly, there is no assurance that our expectations will be realized.
3
PART I.
Item 1. Business
General
We are a Maryland real estate investment trust, qualified as a REIT for federal income tax purposes, focused on 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, 2022, we had equity ownership interests in approximately 116 consolidated real estate properties, located in 21 states and containing an aggregate of approximately 54.0 million square feet of space, approximately 99.5% 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 the investment in diversified net-leased assets. Primarily all of our business is conducted through wholly-owned subsidiaries, but we conduct a portion of our business through an operating partnership subsidiary, Lepercq Corporate Income Fund L.P., which we refer to as LCIF.
Historically, LCIF enabled us to acquire properties by issuing limited partner interests in LCIF, which we refer to as OP units, to sellers of property, as a form of consideration in exchange for the property. The outstanding OP units not held by LXP are generally redeemable for our common shares on a one OP unit for approximately 1.13 common shares basis, or, at our election in certain instances, cash. As of December 31, 2022, there were approximately 0.7 million OP units outstanding, other than OP units held by LXP, which were convertible into approximately 0.8 million common shares, assuming redemptions are satisfied entirely with common shares.
Since December 31, 2015 through December 31, 2022, we transitioned our portfolio from approximately 16% warehouse/distribution assets to approximately 98% warehouse/distribution assets. As of December 31, 2022, our portfolio consisted of 109 warehouse/distribution facilities and seven 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.
Our target markets are where we believe there are 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.
4
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 and opportunistically acquiring facilities in these markets.
The following markets are where we are currently invested, but we own no more than two assets, the markets do not meet enough of our investment criteria, and we do not expect to build our concentration:
•Detroit, MI;
•Kansas City, MO;
•St. Louis, MO;
•Cleveland, OH;
•Champaign-Urbana, IL;
•Erwin, NY;
•New York/New Jersey; and
•Philadelphia, PA.
We expect to opportunistically exit these markets.
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.
5
The average age of our warehouse/distribution properties as of December 31, 2022, was approximately 8.8 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, 2022, our largest tenant represented 6.8% of our ABR and 54.2% of our ABR were 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. Two of these institutional joint ventures, for which there are no future commitments, are invested in non-industrial assets.
The third institutional joint venture, NNN MFG Cold JV L.P. (“MFG Cold JV”), owns a portfolio of 22 special purpose industrial assets comprised of manufacturing and cold storage facilities in which we held a 20% interest as of December 31, 2022. 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 did not make any acquisitions in 2022.
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 and windstorm coverage. 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.
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.
6
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 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, 2022, we had 66 full-time employees and one part-time employee. 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.
Other than certain members of our executive officers, we do not believe that any one employee is material to our operations, but we believe that all of our employees are important for our operations.
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.
Most of our employees continue to work remotely or on a hybrid basis. We hold in person employee events, but also regularly engage with our employees through company-wide video-conference meetings and social events.
Attraction & Retention of Talent. We attract talent by maintaining a positive and good culture and providing competitive compensation and benefits. Some of our benefit highlights are:
•The compensation for employees with the title Assistant Vice President and above 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.
Due to the small size of our employee base, our turnover is generally low. In 2022, six employees voluntarily or involuntarily separated service from us and we hired 10 employees for a net change of four employees.
Demographics. We believe there are many benefits to diversity in our employee base. Of our 66 full-time employees at December 31, 2022, 59.1% were female and 45.5% were non-white. Of our 11 executive employees at December 31, 2022, 18.2% were female and 9.1% were non-white.
In 2020, our employees formed a Diversity, Equity and Inclusion Committee, or the DEIC. The mission of the DEIC is to actively promote diversity, equity and inclusion Company-wide as well as for and among our current and future stakeholders. To that end, the DEIC maintains programs and initiatives to motivate and empower LXP to make a positive difference, including programs focused on recruiting. Furthermore, we maintain a diversity, equity and inclusion policy.
7
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 2022, 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 2022, 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. Our executive employees are reviewed by the Compensation Committee of our Board of Trustees.
•During 2022, we engaged our employees with several surveys, including an employee satisfaction survey. The participation rate for the employee satisfaction survey was 60% and we achieved an 84% overall satisfaction rate.
Human Rights. Respect for human rights and well-being is essential. We maintain an enterprise level human rights policy.
Vendors and Contractors. We outsource the following material functions:
•Information Technology. We use TetherView, LLC for managed IT services and BDO USA, LLC for virtual chief technology officer services, including cybersecurity.
•Internal Audit. We use Ernst & Young LLP for our internal audit function.
•Property Management. We primarily use 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 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 use RE Tech Advisors (formerly Lord Green Real Estate Strategies, Inc.) to assist us with our environmental, social and governance, or ESG, initiatives.
We maintain a supplier code of conduct for our vendors and contractors.
Summary of 2022 Transactions
The following summarizes certain of our transactions during 2022, including transactions disclosed elsewhere and in our other periodic reports.
Leasing Activity.
•During 2022, we entered into new leases and lease extensions encompassing 4.1 million square feet. The average fixed rent on these extended leases was $5.36 per square foot compared to the average fixed rent on these leases before extension of $4.26 per square foot. The weighted-average cost of tenant improvements and lease commissions was $7.82 per square foot for new leases and $0.91 per square foot for extended leases.
•Leased approximately 100 acres of industrial development land in the Phoenix, Arizona market for 20 years.
Investments.
•Acquired three warehouse/distribution facilities for an aggregate cost of $131.2 million.
•Completed and placed into service a 0.8 million square foot warehouse/distribution facility in the Greenville/Spartanburg, South Carolina market.
•Commenced development of two warehouse/distribution facilities in the Central Florida market.
•Invested an aggregate of $298.2 million in development activities, including $204.4 million in six ongoing development projects and 60 acres of developable land.
8
Capital Recycling.
•Disposed of our interests in 10 properties and one land parcel for an aggregate gross disposition price of $197.0 million.
•NNN Office JV L.P. disposed of six properties for an aggregate disposition price of $354.9 million and satisfied an aggregate of $229.5 million of non-recourse variable rate debt. We own 20% of the joint venture and we received aggregate proceeds of $28.1 million.
Debt.
•Amended our revolving credit facility and the 2025 term loan to provide for a new revolving credit facility and the continuation of the 2025 term loan (the “2022 Credit Agreement”). The 2022 Credit Agreement, among other things: (i) extended the maturity date of the revolving portion from February 2023 to July 2026, with two six-month extension options, subject to certain conditions, (ii) reduced the applicable margin for the revolving portion of the credit facility by five basis points to a range from 0.725% to 1.40%, and allows for further reductions upon the achievement of to-be-determined sustainability metrics, (iii) amended the debt covenants by reducing the capitalization rate for determining asset value and (iv) transitioned the facility to SOFR. Simultaneously, we converted the interest rate swap agreements to Term SOFR, which resulted in a new fixed interest rate of 2.722% on the 2025 term loan.
Equity.
•Increased the availability under the share repurchase program by 10.0 million shares.
•Repurchased and retired 12.1 million common shares for an average price of $10.78 per common share.
•Settled 16.0 million common shares previously sold on a forward basis as part of an underwritten equity offering for an aggregate settlement price of $183.4 million.
•Settled 3.6 million common shares previously sold on a forward basis for net proceeds of $38.5 million.
Corporate Responsibility
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 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 2022, 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.
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.
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 will implement base building upgrades and provide tenants with improvement allowance funds to complete sustainability efforts.
9
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 the opportunity to increase renewable energy across the portfolio.
Performance:
•Benchmarked landlord paid energy, water, waste, and recycling across the portfolio and working to expand tenant-paid utility data coverage.
•Obtained green building certifications for six properties and ENERGY STAR certification for five properties in our portfolio during 2022.
•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 into 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.
10
•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 2022 Best Company to Work for in New York.
•Formed a women's mentorship program, where female employees are paired with female mentors for career related advice and support.
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 an overall score of 69, an increase compared to 2021; and,
◦Received Public Disclosure Score of A, above the global average, and placed first in the U.S. Industrial Peer Group.
•Published our 2021 Corporate Responsibility Report, aligned with GRI, SASB 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.
11
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.
Information Technology/Cybersecurity
We believe we maintain an information technology and cybersecurity program appropriate for a company our size taking into account our operations. We outsource our IT managed services to Tetherview LLC, which provides customized private cloud solutions featuring virtual desktops and servers in the Digital BunkerTM. The Digital BunkerTM is a zero-trust environment with 24/7 monitoring and is built to the NISI/ISO framework and is SOC 2 Type 2 Compliant.
We engage BDO USA, LLC to provide virtual Chief Technology Officer services, which includes cybersecurity advisory. We also maintain cybersecurity insurance providing coverage for certain costs related to security failures and specified cybersecurity-related incidents that interrupt our network or networks of our vendors, in all cases up to specified limits and subject to certain exclusions.
The Audit and Cyber Risk Committee of our Board of Trustees oversees our information technology and cybersecurity strategy and initiatives. One of the members of the Audit and Cyber Risk Committee of our Board of Trustees is an information technology/cybersecurity expert. Our management and BDO USA, LLC report to the Audit and Cyber Risk Committee on at least a quarterly basis.
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 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 2022.
12
Item 1A. Risk Factors
Set forth below are material factors that may adversely affect our business and operations.
Risks Related to Our Business
We are subject to risks related to defaults under, or termination or expiration of, our leases.
We focus our acquisition 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, our property owner subsidiary 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.
13
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.
14
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 growth strategy is based on the acquisition and development of additional industrial properties and related assets. In the context of our business plan, “development” generally means an expansion or renovation of an existing property or the financing and/or acquisition of a newly constructed build-to-suit or speculative property and/or the development of a land parcel. For newly constructed properties, we may (1) provide a developer with either a combination of financing for the construction of a property or a commitment to acquire a property upon completion of construction of a property and commencement of rent from the tenant, (2) acquire a property subject to a lease and engage a developer to complete construction of a property as required by the lease, or (3) partner with a developer to acquire and develop or acquire on our own and engage a developer to develop land and pursue development opportunities.
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. The consummation of any future acquisitions will be subject to satisfactory completion of an extensive valuation analysis and due diligence review and to the negotiation of definitive documentation. Our ability to implement our strategy may be impeded because we may have difficulty finding new properties and investments at attractive prices that meet our investment criteria, negotiating with new or existing tenants or securing acceptable financing. If we are unable to carry out our strategy, our financial condition and results of operations could be adversely affected. Acquisitions of additional properties entail the risk that investments will fail to perform in accordance with expectations, including operating and leasing expectations.
Some of our acquisitions and developments may be financed using the proceeds of periodic equity or debt offerings, lines of credit or other forms of secured or unsecured financing that may result in a risk that permanent financing for newly acquired projects might not be available or would be available only on disadvantageous terms. If permanent debt or equity financing is not available on acceptable terms to refinance acquisitions undertaken without permanent financing, further acquisitions 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, in the current market, generally have lower capitalization rates. This strategy impacts growth in the short-term period. 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.
15
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, 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.
Cybersecurity risks and cyber incidents may adversely affect our business by causing a disruption to our operations, a compromise or corruption of our confidential information, misappropriation of assets and/or damage to our business relationships, all of which could negatively impact our financial results.
Cyber incidents may result in disrupted operations, 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. Any processes, procedures and internal controls that we implement, as well as our increased awareness of the nature and extent of a risk of a cyber incident, do not guarantee that our financial results, operations, business relationships or confidential information will not be negatively impacted by such an incident.
16
Insider or employee cyber and security threats are increasingly a concern for all companies, including ours. In addition, social engineering and phishing are a particular concern for companies with employees. As a landlord, we are also susceptible to cyber attacks on our tenants and their payment systems. We outsource the maintenance of our information technology systems to third party vendors. We are also continuously working to provide employee awareness training around phishing, malware and other cyber risks to ensure that we are protected, to the greatest extent possible, against cyber risks and security breaches. However, such outsource partners and training may not be sufficient to protect us from all risks.
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.
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
The outbreak of highly infectious or contagious diseases, could adversely impact or cause disruption to our business, financial condition, results of operations and cash flows. Further, any such outbreak may disrupt U.S. and global financial markets and could potentially create widespread business continuity issues.
In recent years the outbreaks of a number of diseases, including Avian Bird Flu, H1N1, and COVID-19 have increased the risk of a pandemic.
The COVID-19 pandemic coincided with labor shortages and increased staffing costs for many companies operating in the United States. COVID-19 related disruptions to the international supply chain, including transportation and distribution delays, longer lead times for construction materials and increased construction costs have resulted in shortages of certain goods and inflationary conditions. These developments, as well as other geopolitical factors have resulted in prolonged inflationary conditions that have had a detrimental impact on our tenant base, our ability to lease vacant space and our ability to grow through development and acquisition. This has also resulted in market volatility and large decreases in global stock prices. These potential
17
risks have also negatively impacted access to capital, which negatively impacts liquidity and our ability to execute our strategic plans.
The impacts of the outbreak could, among other things, negatively affect (i) the operation of our properties, (ii) the effectiveness of our strategic decision making, (iii) the operation of an effective cyber security function, (iv) the operation of our key information systems, (v) our ability to make timely filings with the SEC and (vi) our ability to maintain an effective control environment.
The rapid development and fluidity of any outbreak precludes any prediction as to the ultimate adverse impact of such outbreak. Nevertheless, future pandemics could have, a significant adverse impact on economic and market conditions of economies around the world, including the United States, the results of which have and would present material uncertainty and risk with respect to our performance, financial condition, results of operations and cash flows.
Disruptions in the financial markets and uncertain economic conditions could adversely affect our ability to obtain debt financing on reasonable terms, the value of our real estate investments, and have other adverse effects on us.
Concerns over economic recession, the COVID-19 pandemic, interest rate increases, policy priorities of the U.S. presidential administration, trade wars, labor shortages, or inflation may contribute to increased volatility and diminished expectations for the economy and markets and have caused the spreads on prospective debt financings to widen considerably. Additionally, concern over geopolitical issues may also contribute to prolonged market volatility and instability. For example, the conflict between Russia and Ukraine has led to disruption, instability and volatility in global markets and industries. The U.S. government and other governments in jurisdictions have imposed severe economic sanctions, export controls and other against Russia and Russian interests, and have threatened additional sanctions and controls. The full impact of these measures, as well as potential responses to them by Russia, is unknown.
The United States credit markets have periodically experienced significant dislocations and liquidity disruptions due to a variety of factors, including those enumerated above. These circumstances may materially impact liquidity in the debt markets, making financing terms for borrowers less attractive, and in certain cases may result in the unavailability of certain types of debt financing. Uncertainty in the credit markets may negatively impact our ability to access additional debt financing on reasonable terms, which may negatively affect our ability to make acquisitions. A prolonged downturn in the credit markets may cause us to seek alternative sources of potentially less attractive financing and may require us to adjust our business plan accordingly. 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. These events in the credit markets may have an adverse effect on other financial markets in the United States, which may make it more difficult or costly for us to raise capital through the issuance of our common shares or preferred shares. These disruptions in the financial markets may have other adverse effects on us, our tenants or the economy in general.
These circumstances could also impact real estate fundamentals and result in lower occupancy, lower rental rates, and declining values in our real estate portfolio and in the real estate collateral securing any indebtedness. As a result, the value of our property investments could decrease below the amounts paid for such investments, the value of real estate collateral securing any indebtedness could decrease below the outstanding principal amounts of such indebtedness, and revenues from our properties could decrease due to fewer and/or delinquent tenants or lower rental rates. This could significantly harm our revenues, results of operations, financial condition, business prospects and our ability to make distributions to our shareholders.
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 impacts of future climate change.
We are exposed to potential physical risks from possible future 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.
18
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 future 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 may be more leveraged than certain of our competitors. 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, 2022, our total consolidated indebtedness was approximately $1.5 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. 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, 2022, we had $129.1 million of trust preferred securities that mature in April 2037 that is LIBOR indexed. In addition, we have a $300.0 million unsecured term loan which matures January 2025 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
19
indebtedness may increase if we are required to refinance our fixed-rate indebtedness upon maturity at higher interest rates. Also, fixed-rate debt securities generally decline in value as market rates rise because the premium, if any, over market interest rates will decline.
Recent inflationary pressures have resulted in higher interest rates, which have a negative impact on our business.
Rising inflation and elevated U.S. budget deficits and overall debt levels, including as a result of federal pandemic relief and stimulus legislation and/or economic or market and supply chain conditions, have put upward pressure on interest rates and could be among the factors that could lead to higher interest rates in the future. Higher interest rates could adversely affect our overall business, income, and our ability to pay dividends, including by reducing the fair value of many of our assets and adversely affecting our ability to obtain financing on favorable terms or at all, and negatively impacting the value of properties and the ability of prospective buyers to obtain financing for properties we intend to sell. This may affect our earnings results, reduce our ability to sell our assets, or reduce our liquidity. Furthermore, our business and financial results may be harmed by our inability to accurately anticipate developments associated with changes in, or the outlook for, interest rates.
The LIBOR index rate may not be available in the future.
On March 5, 2021, the Financial Conduct Authority announced that it intends to stop compelling banks to submit rates for the calculation of one, three and six month LIBOR after June 30, 2023. It is unclear whether new methods of calculating such LIBOR periods will be established such that they continue to exist after June 30, 2023. It is not possible to predict the effect of these changes, other reforms or the establishment of alternative reference rates in the United States or elsewhere. The Alternative Reference Rates Committee (or ARRC) has proposed that the Secured Overnight Financing Rate (or SOFR) is the rate that represents best practice as the alternative to USD-LIBOR for use in derivatives and other financial contracts that are currently indexed to USD-LIBOR. ARRC has proposed a paced market transition plan to SOFR from USD-LIBOR and organizations are currently working on industry wide and company specific transition plans as it relates to derivatives and cash markets exposed to USD-LIBOR. Our trust preferred securities do not provide for a clear alternative to USD-LIBOR.
The transition from LIBOR to an alternative reference rate could result in higher all-in interest costs on our trust preferred securities, which could impact our financial performance.
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, 2022, we had aggregate interest rate swap agreements on $300.0 million of borrowings. 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.
20
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 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.
We may not be able to generate sufficient cash flow to meet our debt service obligations.
Our ability to make payments on and to refinance our indebtedness depends on our ability to generate cash in the future. To a certain extent, our cash flow is subject to general economic, industry, financial, competitive, operating, legislative, regulatory and other factors, many of which are beyond our control. We cannot assure you that our business will generate sufficient cash flow from operations or that future sources of cash will be available to us in an amount sufficient to enable us to pay amounts due on our indebtedness. Additionally, if we incur additional indebtedness in connection with future acquisitions or development projects or for any other purpose, our debt service obligations could increase.
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.
21
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.
We disclose certain non-GAAP financial measures in documents filed and/or furnished with the SEC; however, the non-GAAP financial measures we disclose are not equivalent to applicable comparable GAAP measures, and you should consider GAAP measures to be more relevant to our operating performance.
We use and disclose to investors FFO, Adjusted Company FFO, NOI and other non-GAAP financial measures. FFO, 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.
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.
22
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, 2022, 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.
Limits on ownership of our capital shares may have the effect of delaying, deferring or preventing someone from taking control of us.
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. The ownership limits discussed above may have the effect of delaying, deferring or preventing someone from taking control of us, even though a change of control could involve a premium price for the common shares or otherwise be in shareholders' best interests.
The trading price of our common shares has been, and may continue to be, subject to significant fluctuations.
The market price of our common shares may fluctuate in response to company-specific and general market events and developments, including those described in this Annual Report. In addition, our leverage may impact investor demand for our common shares, which could have a material effect on the market price of our common shares.
Furthermore, in 2021, we disclosed communications with an activist shareholder. Investor activism could interfere with our ability to execute our strategic plan, divert the attention of our Board of Trustees, management and employees, give rise to perceived uncertainties as to our future direction, adversely affect our relationships with key business partners, result in a loss of potential business opportunities, make it more difficult to attract and retain qualified personnel, or require us to incur substantial legal and public relations fees and expenses, any of which could adversely affect our business and operating results.
23
The public valuation of our common shares is related primarily to the earnings that we derive from rental income with respect to the properties in which we have an interest and not from the underlying appraised value of the properties themselves. As a result, interest rate fluctuations and capital market conditions can affect the market value of our common shares. For instance, if interest rates rise, the market price of our common shares may decrease because potential investors seeking a higher yield than they would receive from our common shares may sell our common shares in favor of higher yielding securities.
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.
24
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.
25
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.
26
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.
27
Item 2. Properties
Real Estate Portfolio
General. As of December 31, 2022, we had ownership interests in approximately 116 consolidated real estate properties containing approximately 54.0 million square feet of rentable space, which were approximately 99.5% 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.
Leverage. As of December 31, 2022, we had outstanding consolidated mortgages and notes payable of approximately $73.2 million with a weighted-average interest rate of approximately 4.0% and a weighted-average maturity of 6.7 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, 2022.
28
| LXP CONSOLIDATED PORTFOLIO PROPERTY CHART WAREHOUSE/DISTRIBUTION | ||||||||||||||||||||
As of December 31, 2022 | ||||||||||||||||||||
| 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 | % | ||||||||||||||
| 4445 N. 169th Ave. | Goodyear | AZ | 160,140 | 12/31/2025 | 100 | % | ||||||||||||||
| 17510 W. Thomas Rd. | Goodyear | AZ | 468,182 | 11/30/2036 | 100 | % | ||||||||||||||
| 16811 W. Commerce Dr. | Goodyear | AZ | 540,349 | 4/30/2026 | 100 | % | ||||||||||||||
| 255 143rd Ave. | Goodyear | AZ | 801,424 | 9/30/2030 | 100 | % | ||||||||||||||
| 8989 W. Buckeye Rd. | Phoenix | AZ | 268,872 | 5/31/2037 | 100 | % | ||||||||||||||
Parcel Number: 501-42-015B (1) | Phoenix | AZ | N/A | 11/5/2042 | 100 | % | ||||||||||||||
| 1515 South 91st Ave. | Phoenix | AZ | 496,204 | 12/31/2027 | 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 St. | 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 | 9/30/2027 | 65 | % | ||||||||||||||
| 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 | 10/31/2023 | 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 | 5/31/2024 | 100 | % | ||||||||||||||
| 3931 Lakeview Corporate Dr. | Edwardsville | IL | 769,500 | 9/30/2026 | 100 | % | ||||||||||||||
| 4015 Lakeview Corporate Dr. | Edwardsville | IL | 1,017,780 | 5/31/2030 | 100 | % | ||||||||||||||
29
| LXP CONSOLIDATED PORTFOLIO PROPERTY CHART WAREHOUSE/DISTRIBUTION | ||||||||||||||||||||
As of December 31, 2022 | ||||||||||||||||||||
| Property Location | City | State | Net Rentable Square Feet | Primary Tenant Current Lease Term Expiration | Percent Leased | |||||||||||||||
| 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 S. Central Ave. | Rockford | IL | 93,000 | 12/31/2024 | 100 | % | ||||||||||||||
| 749 Southrock Dr. | Rockford | IL | 150,000 | 12/31/2024 | 100 | % | ||||||||||||||
| 1621 Veterans Memorial Pkwy. E. | Lafayette | IN | 309,400 | 9/30/2029 | 100 | % | ||||||||||||||
| 1285 W. State Road 32 | Lebanon | IN | 741,880 | 1/31/2024 | 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 | % | ||||||||||||||
| 180 Bob Glidden Blvd. | Whiteland | IN | 179,530 | 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 | % | ||||||||||||||
| 3751 S. CR 500 E. | 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 | % | ||||||||||||||
| 2860 Clark St. | Detroit | MI | 189,960 | 10/22/2035 | 100 | % | ||||||||||||||
| 1700 47th Ave. North | Minneapolis | MN | 18,620 | 12/31/2025 | 100 | % | ||||||||||||||
| 549 Wingo Rd. | Byhalia | MS | 855,878 | 3/31/2030 | 100 | % | ||||||||||||||
| 1550 Hwy. 302 | Byhalia | MS | 615,600 | 9/30/2027 | 100 | % | ||||||||||||||
| 554 Nissan Pkwy. | Canton | MS | 1,466,000 | 2/28/2027 | 100 | % | ||||||||||||||
| 11555 Silo Dr. | Olive Branch | MS | 927,742 | 4/30/2024 | 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 | % | ||||||||||||||
30
| LXP CONSOLIDATED PORTFOLIO PROPERTY CHART WAREHOUSE/DISTRIBUTION | ||||||||||||||||||||
As of December 31, 2022 | ||||||||||||||||||||
| 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 | % | ||||||||||||||
| 7005 Cochran Rd. | Glenwillow | OH | 458,000 | 7/31/2025 | 100 | % | ||||||||||||||
| 191 Arrowhead Dr. | Hebron | OH | 250,410 | 9/30/2033 | 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 | % | ||||||||||||||
| 70 Tyger River Dr. | Duncan | SC | 408,000 | 1/31/2024 | 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 | % | ||||||||||||||
| 21 Inland Pkwy. | Greer | SC | 1,318,680 | 12/31/2034 | 100 | % | ||||||||||||||
| 7820 Reidville Rd. | Greer | SC | 210,820 | Various | 100 | % | ||||||||||||||
| 7870 Reidville Rd. | Greer | SC | 396,073 | 9/30/2025 | 100 | % | ||||||||||||||
| 8201 Reidville Rd. | Greer | SC | 797,936 | 4/30/2035 | 100 | % | ||||||||||||||
| 5795 North Blackstock Rd. | Spartanburg | SC | 341,660 | 7/31/2024 | 100 | % | ||||||||||||||
| 1021 Tyger Lake Rd. | Spartanburg | SC | 213,200 | 2/28/2031 | 100 | % | ||||||||||||||
| 6050 Dana Way | Antioch | TN | 674,528 | 6/30/2031 | 89 | % | ||||||||||||||
| 1520 Lauderdale Memorial Hwy. | Cleveland | TN | 851,370 | 3/31/2024 | 100 | % | ||||||||||||||
31
| LXP CONSOLIDATED PORTFOLIO PROPERTY CHART WAREHOUSE/DISTRIBUTION | ||||||||||||||||||||
As of December 31, 2022 | ||||||||||||||||||||
| Property Location | City | State | Net Rentable Square Feet | Primary Tenant Current Lease Term Expiration | Percent Leased | |||||||||||||||
| 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 | % | ||||||||||||||
| 13901/14035 Industrial Rd. | 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 | N/A | 4/30/2032 | 100 | % | ||||||||||||||
| 8601 E. Sam Lee Ln. | Northlake | TX | 1,214,526 | 8/31/2029 | 100 | % | ||||||||||||||
| 17505 Interstate Hwy. 35W | Northlake | TX | 500,556 | 10/31/2024 | 100 | % | ||||||||||||||
| 10535 Red Bluff Rd. | Pasadena | TX | 257,835 | 8/31/2023 | 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 Park Center Dr. | Winchester | VA | 344,700 | 5/31/2031 | 100 | % | ||||||||||||||
| 80 Tyson Dr. | Winchester | VA | 400,400 | 12/18/2031 | 100 | % | ||||||||||||||
| Stabilized total | 52,544,497 | 99.5 | % | |||||||||||||||||
| Warehouse/Distribution total | 52,544,497 | 99.5 | % | |||||||||||||||||
(1) Includes industrial development leased land.
As of December 31, 2022, annualized cash base rent for the warehouse/distribution portfolio, excluding assets primarily consisting of land leases was $4.47 per square foot. The weighted-average remaining lease term was 6.5 years.
32
| LXP CONSOLIDATED PORTFOLIO PROPERTY CHART OTHER | ||||||||||||||||||||
| As of December 31, 2022 | ||||||||||||||||||||
| Property Location | City | State | Net Rentable Square Feet | Primary Tenant Current Lease Term Expiration | Percent Leased | |||||||||||||||
| 3333 Coyote Hill Rd. | Palo Alto | CA | 202,000 | 12/14/2023 | 100 | % | ||||||||||||||
| 1901 Ragu Dr. | Owensboro | KY | 443,380 | 12/19/2025 | 100 | % | ||||||||||||||
| 30 Light St. | Baltimore | MD | N/A | 12/31/2048 | 100 | % | ||||||||||||||
| 4 Apollo Dr. | Whippany | NJ | 123,734 | 11/30/2031 | 100 | % | ||||||||||||||
| 1701 Market St. | Philadelphia | PA | 304,037 | 1/31/2024 | 97 | % | ||||||||||||||
| 3476 Stateview Blvd. | Fort Mill | SC | 169,083 | 5/31/2024 | 100 | % | ||||||||||||||
| 3480 Stateview Blvd. | Fort Mill | SC | 169,218 | 5/31/2024 | 100 | % | ||||||||||||||
| Other total | 1,411,452 | 99.4 | % | |||||||||||||||||
| Consolidated portfolio total | 53,955,949 | 99.5 | % | |||||||||||||||||
As of December 31, 2022, annualized cash base rent for the other portfolio was $13.99 per square foot, excluding Baltimore, Maryland, and the weighted-average remaining lease term was 2.4 years.
As of December 31, 2022, annualized cash base rent for the consolidated portfolio was $4.72 per square foot, excluding assets primarily consisting of land leases. The weighted-average remaining lease term was 6.2 years.
33
| LXP NON-CONSOLIDATED PORTFOLIO PROPERTY CHART | ||||||||||||||||||||
| As of December 31, 2022 | ||||||||||||||||||||
| 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 | 6/30/2025 | 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% | 97,000 | 3/31/2026 | 100 | % | |||||||||||||
| 25 Lakeview Dr. | Jessup | PA | 20% | 150,000 | 8/7/2027 | 100 | % | |||||||||||||
| 601 & 701 Experian Pkwy. | Allen | TX | 20% | 292,700 | 3/14/2025 | 100 | % | |||||||||||||
| 4001 International Pkwy. | Carrollton | TX | 20% | 138,443 | 12/31/2025 | 100 | % | |||||||||||||
| 8900 Freeport Pkwy. | Irving | TX | 20% | 261,305 | 3/31/2023 5/31/2033 | 100 | % | |||||||||||||
| 2203 North Westgreen Blvd. | Katy | TX | 25% | 274,000 | 8/31/2036 | 100 | % | |||||||||||||
| Office/Other total | 1,667,948 | 100.0 | % | |||||||||||||||||
| 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 | 4/30/2024 | 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 | % | |||||||||||||
34
| LXP NON-CONSOLIDATED PORTFOLIO PROPERTY CHART | ||||||||||||||||||||
| As of December 31, 2022 | ||||||||||||||||||||
| Property Location | City | State | Percent Owned | Net Rentable Square Feet | Primary Tenant Current Lease Term Expiration | Percent Leased | ||||||||||||||
| 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 | % | |||||||||||||
| 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 | 5/31/2024 | 100 | % | |||||||||||||
| Special purpose industrial total | 6,719,210 | 100 | % | |||||||||||||||||
| Non-consolidated portfolio total | 8,387,158 | 100 | % | |||||||||||||||||
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, 2022, the annualized cash base rent for the non-consolidated portfolio was $8.56 per square foot and the weighted-average remaining lease term was 7.1 years.
35
Development Projects
The following is a summary of our warehouse/distribution ongoing development projects as of December 31, 2022:
Ongoing Development Projects
| Project (% owned) | # of Buildings | Market | Estimated Sq. Ft. | Estimated Project Cost(1) | GAAP Investment Balance as of 12/31/2022 ($000) | LXP Amount Funded as of 12/31/2022 ($000)(2) | Actual/Estimated Building Completion Date | % Leased as of 12/31/2022 | ||||||||||||||||||
| Consolidated: | ||||||||||||||||||||||||||
The Cubes at Etna East (95%)(3) | 1 | Columbus, OH | 1,074,840 | $ | 72,850 | $ | 61,171 | $ | 58,455 | 3Q 2022 | — | % | ||||||||||||||
| Ocala (80%) | 1 | Central Florida | 1,085,280 | 83,100 | 73,737 | 63,388 | 1Q 2023 | — | % | |||||||||||||||||
| Mt. Comfort (80%) | 1 | Indianapolis, IN | 1,053,360 | 65,500 | 59,379 | 49,848 | 1Q 2023 | — | % | |||||||||||||||||
| South Shore (100%) | 2 | Central Florida | 270,885 | 40,500 | 25,782 | 13,553 | 2Q 2023 | — | % | |||||||||||||||||
Cotton 303 (93%)(4) | 2 | Phoenix, AZ | 880,678 | 84,200 | 64,682 | 56,570 | 1Q 2023 - 2Q 2023 | 45 | % | |||||||||||||||||
Smith Farms (90%)(5) | 2 | Greenville-Spartanburg, SC | 1,396,884 | 101,550 | 77,173 | 67,780 | 1Q 2023 - 2Q 2023 | — | % | |||||||||||||||||
| $ | 447,700 | $ | 361,924 | $ | 309,594 | |||||||||||||||||||||
Land Held for Industrial Development
| Project (% owned) | Market | Approx. Developable Acres | GAAP Investment Balance as of 12/31/2022 ($000) | LXP Amount Funded as of 12/31/2022 ($000)(2) | ||||||||||
| Consolidated: | ||||||||||||||
Reems & Olive (95.5%)(6) | Phoenix, AZ | 320 | $ | 77,379 | $ | 73,957 | ||||||||
| Mt. Comfort Phase II (80%) | Indianapolis, IN | 116 | 5,301 | 4,213 | ||||||||||
| ATL Fairburn (100%) | Atlanta, GA | 14 | 1,732 | 1,736 | ||||||||||
| 450 | $ | 84,412 | $ | 79,906 | ||||||||||
| Project (% owned) | Market | Approx. Developable Acres | GAAP Investment Balance as of 12/31/2022 ($000) | LXP Amount Funded as of 12/31/2022 ($000)(2) | ||||||||||
| Non-consolidated: | ||||||||||||||
| Etna Park 70 (90%) | Columbus, OH | 66 | $ | 12,975 | $ | 13,599 | ||||||||
| Etna Park 70 East (90%) | Columbus, OH | 21 | 2,126 | 2,363 | ||||||||||
| $ | 15,101 | $ | 15,962 | |||||||||||
(1)Estimated project cost includes estimated tenant improvements and leasing costs and excludes potential developer partner promote, if any.
(2)Excludes noncontrolling interests' share.
(3)Base building achieved substantial completion. Property not in service as of December 31, 2022.
(4)Pre-leased 392,278 square foot facility with a 10-year lease commencing upon substantial completion of the facility and notice to the tenant.
(5)In December 2022, substantially completed and placed into service a 797,936 square foot facility subject to a 12-year lease that commenced upon substantial completion of the facility. Remaining two projects ongoing.
(6)Ground leased approximately 100 acres of the 420 acre development land parcel located in the Phoenix, Arizona market, subject to a 20-year ground lease (with three, 10-year extension options). The initial annual rental payments are $5.2 million and escalate by 4% annually.
36
Tenant Diversification
We believe our tenant mix is well diversified. Below are the industries in our warehouse/distribution portfolio based on 2022 ABR for consolidated properties owned as of December 31, 2022:
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, 2022, the weighted-average lease term in our industrial portfolio was 6.5 years.
37
The following table sets forth information about the 15 largest tenants/guarantors in our portfolio as of December 31, 2022 based on total annualized base rental revenue as of December 31, 2022 ($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 | 7.2 | % | $ | 18,241 | 6.8 | % | ||||||||||||||||||||||||||||||||||
| Nissan | Industrial | 2027 | 2 | 2,971,000 | 5.5 | % | 12,908 | 4.8 | % | |||||||||||||||||||||||||||||||||||
| Kellogg | Industrial | 2027-2029 | 3 | 2,801,916 | 5.2 | % | 9,575 | 3.6 | % | |||||||||||||||||||||||||||||||||||
| Wal-Mart | Industrial | 2024 -2031 | 3 | 2,351,917 | 4.4 | % | 8,773 | 3.3 | % | |||||||||||||||||||||||||||||||||||
| GXO Logistics | Industrial | 2024-2028 | 3 | 1,697,475 | 3.2 | % | 7,386 | 2.7 | % | |||||||||||||||||||||||||||||||||||
| Xerox | Office | 2023 | 1 | 202,000 | 0.4 | % | 7,070 | 2.6 | % | |||||||||||||||||||||||||||||||||||
| Watco | Industrial | 2038 | 1 | 132,449 | 0.3 | % | 6,318 | 2.4 | % | |||||||||||||||||||||||||||||||||||
Morgan Lewis (5) | Office | 2024 | 1 | 289,432 | 0.5 | % | 5,860 | 2.2 | % | |||||||||||||||||||||||||||||||||||
| FedEx | Industrial | 2028 | 2 | 292,021 | 0.5 | % | 5,728 | 2.1 | % | |||||||||||||||||||||||||||||||||||
| Mars Wrigley | Industrial | 2025 | 1 | 604,852 | 1.1 | % | 5,396 | 2.0 | % | |||||||||||||||||||||||||||||||||||
Aligned Data Centers (6) | Industrial | 2042 | 1 | — | — | % | 5,228 | 1.9 | ||||||||||||||||||||||||||||||||||||