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Operator: Good morning ladies and gentlemen and welcome to the LXP Industrial Trust fourth quarter 2022 earnings call and webcast. At this time, all participants are in a listen-only mode, and please be advised that this call is being recorded. After the speakers’ prepared remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star, one on your telephone keypad. If you would like to withdraw your question, press star, one again. Now I’d like to turn the call over to Ms. Heather Gentry, Senior Vice President of Investor Relations. Ms. Gentry, please go ahead.

Heather Gentry: Thank you Operator. Welcome to LXP Industrial Trust’s fourth quarter 2022 earnings conference call and webcast. The earnings release was distributed this morning and both the release and quarterly supplemental are available on our website in the Investors section and will be furnished to the SEC on a Form 8-K. Certain statements made during this conference call regarding future events and expected results may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. LXP believes that these statements are based on reasonable assumptions, however certain factors and risks, including those included in today’s earnings press release and those described in reports that LXP files with the SEC from time to time, could cause LXP’s actual results to differ materially from those expressed or implied by such statements.

Except as required by law, LXP does not undertake a duty to update any forward-looking statement. In the earnings press release and quarterly supplemental disclosure package, LXP has reconciled all non-GAAP financial measures to the most directly comparable GAAP measure. Any references in these documents to adjusted company FFO refer to adjusted company funds from operations available to all equity holders and unit holders on a fully diluted basis. Operating performance measures of an individual investment are not intended to be viewed as presenting a numerical measure of LXP’s historical or future financial performance, financial position or cash flows. On today’s call, Will Eglin, Chairman and CEO, Beth Boulerice, CFO, Brendan Mullinix, CIO, and Executive Vice President James Dudley will provide a recent business update and commentary on fourth quarter results.

I will now turn the call over to Will.

Will Eglin: Thanks Heather and good morning everyone. Our fourth quarter operating performance was good across the board with notable accomplishments in leasing, dispositions, and balance sheet management. We continue to have tremendous success on the leasing front, raising industrial base and cash base rents on renewals approximately 38% and 43% in the fourth quarter respectively. Industrial leasing volume was exceptionally strong in 2022 with 4 million square feet leased during the year at base and cash base rental increases of approximately 31% and 26% respectively. We are currently in discussions with many of our tenants whose leases expire through 2024, which we believe bodes well for strong tenant retention with the opportunity to raise rents as contract rents continue to be well below market.

Moving forward, a slowdown in overall leasing that is more in line with pre-pandemic levels is expected, but we believe the prospects for continued industrial rent growth are good as overall vacancy remains low. We realized approximately $50 million of proceeds from dispositions in the fourth quarter, including the sale of two industrial properties. These industrial sales are consistent with our strategy to dispose of assets in non-core markets that do not fit our growth objectives. Further, we continued to shrink our office joint venture during the quarter, disposing of three assets valued at approximately $37 million. Subsequent to quarter end, we sold another joint venture asset in Houston for $82 million, which generated net proceeds of approximately $8 million for our 25% interest.

Total 2022 consolidated disposition volume of approximately $197 million at attractive 5.6% GAAP and cash cap rates produced favorable pricing in a year where cap rates increased. Our 2023 disposition plan contemplates marketing for sale up to seven industrial assets in certain non-core markets, including St. Louis, Detroit, Cleveland, Kansas City, and Philadelphia. Continued challenges in the office sales market delayed the disposition of several consolidated office assets originally slated for sale in the fourth quarter. While we still intend to dispose of the remaining four office assets, excluding our Palo Alto property, as soon as practicable, this portfolio continues to produce strong cash flow with annualized NOI of approximately $11 million.

Moving to the balance sheet, at year end we settled our $16 million common share forward equity transaction using the proceeds to repay amounts outstanding on our $600 million revolver, which was fully available at year end. When adjusted for 2022 share repurchases, we issued a net 3.9 million common shares at $13.53 per common share in connection with that transaction. Leverage declined from 7.1 times at September 30 to 6.4 time net debt to adjusted EBITDA at year end, well within our current target leverage range of six to seven times. As we look ahead to 2023, we anticipate development spend of approximately $125 million to be funded with sale proceeds, cash on hand, and line draws. We may utilize any excess capital to reduce leverage further while maintaining some capacity to deploy capital into our land bank and other investments, should attractive opportunities arise.

Finally, we’re excited to make further progress with our ESG program in 2023 as we prepare to submit to GRESB for the third time, enhance our framework transparency, expand our resiliency reporting, and implement a decarbonization program. We also look forward to sharing more details in our 2022 corporate responsibility report, which we will publish later this year. With that, I’ll turn the call over to Brendan to discuss investments in more detail.

Brendan Mullinix: Thanks Will. During the quarter, we funded approximately $53 million in our six ongoing development projects. We completed construction of our previously leased facility in Greenville-Spartanburg in the fourth quarter with the tenant occupying the 800,000 square foot facility upon the building’s completion. The larger of the two remaining properties in this project is expected to be completed in the first quarter, and the smaller property is slated for delivery in the second quarter. Total 2022 development spend was approximately $255 million for the six ongoing projects and the stabilized Greenville-Spartanburg property I just mentioned. Moving to Phoenix, we expect completion of the lease facility and our spec development project later this quarter, with the second facility likely finishing in the second quarter.

Also in Phoenix, as discussed last quarter, we ground leased 100 acres at our 420 acre Woolf Farms land parcel to a data center user for 20 years. The initial annual ground rent of $5.2 million with 4% annual rental increases is a fantastic outcome that is expected to produce an initial 5.2% annual return on our original purchase price. Subsequent to quarter end, our Ocala and Indianapolis projects reached substantial completion and we expect our South Shore, Florida project to complete in the second quarter. Lastly, in Dallas we anticipate closing on a $15 million forward purchase of a 124,000 square foot spec built building in the first half of 2023. The project is being developed by the same developer who completed our facility in Dallas, which is adjacent to this project.

We are actively marketing the space for lease and have found tenant demand to be strong for this size facility. Additionally, we continue to see active tenant inquiries at all of our ongoing development projects. With that, I’ll turn the call over to James to discuss leasing.

James Dudley: Thanks Brendan. Rent growth in our target markets grew on average approximately 20% year-over-year through the fourth quarter, while average vacancy declined marginally. Compared to the third quarter, this represents a slight increase in our target markets’ rent growth despite a broader modest leasing deceleration. As of the fourth quarter for leases expiring through 2028, we estimate our industrial portfolio’s in-place rents to be approximately 21% below market, with these in-place rents forecasted to grow approximately 34% on average or 24% net of contractual rent escalations based on independent brokers’ estimates. Forecasted rent growth is likely to be slower going forward, which is more in line with the leasing environment pre-pandemic, as Will mentioned.

We believe our mark-to-market opportunity remains strong for quality assets in key markets with access to an attractive tenant base. Our industrial portfolio grew to 99.5% leased at year end, a slight increase when compared to the third quarter. There are only two remaining 2023 lease expirations which are currently being addressed. Year to date, we have approximately 6 million square feet of industrial space expiring in 2024, which provides us with a great opportunity to increase rents. We estimate 2024 expiring rents to increase 20% to 30% based on current negotiations and third party broker estimates. During the quarter, we extended the 2023 lease expiration of our 510,000 square foot industrial facility in Dallas for three years with 4% annual bumps, for an increase of 43% over the prior term’s cash base rent.

Additionally, we leased the remaining 81,000 square feet at our industrial facility in Grier, South Carolina for just over five years. Annual rental bumps of 4% and a starting rent of 17% above our original underwriting assumptions is a great outcome for this space. Subsequent to quarter end, the tenant in our 742,000 square foot industrial facility in Indianapolis exercised their fixed rate option to renew for five years, increasing the annual rent 2% per year for the extended term. The renewal extends the lease through January of 2029. With that, I’ll turn the call over to Beth to discuss financial results.

Beth Boulerice: Thanks James. Revenue in the fourth quarter was approximately $81 million with property operating expenses of approximately $13 million, 90% of which was attributable to tenant reimbursements. Adjusted company FFO for the quarter of $0.17 per diluted common share, or approximately $48 million brought our 2022 adjusted company FFO to $0.67 per diluted common share. Fourth quarter G&A was approximately $10 million with full year G&A of approximately $36 million, excluding certain advisory costs. We expect 2023 G&A to be within a range of $35 million to $37 million. During the quarter, we recognized $37.7 million of selling profit from sales type leases. This primarily related to the recognition of an investment in a sales type lease for the 100 acre ground lease in Phoenix that Brendan mentioned.

This ground lease is classified as a sales type lease versus an operating lease under GAAP. In accordance with the guidance, we derecognized the land, measured the investment at fair value, and recorded an investment in a sales type lease on the balance sheet and recognized a day one gain. This morning, we announced 2023 adjusted company FFO guidance within a range of $0.66 to $0.70 per diluted common share. This guidance considers the timing of development lease-up and sales volume, amongst other items discussed on today’s call. Our same store industrial portfolio was 99.8% leased at year end with same store industrial NOI growth of 6.7% quarter-over-quarter and 5.3% for 2022. We anticipate our 2023 industrial same store NOI growth will be in the 4% to 5% range.

At quarter end, approximately 96% of our industrial portfolio leases had escalations with an average annual rate of 2.5%. We settled our forward common share sales contract in December with aggregate net proceeds from this transaction of $183.4 million. As of December 31, 2022, we had full availability on our $600 million unsecured revolving credit facility. We continue to experience minimal exposure to rising interest rates. At quarter end, consolidated debt outstanding was approximately $1.5 billion with 91.4% of this debt fixed. Our total consolidated debt had a weighted average interest rate of 3.2% and a weighted average term to maturity of 6.5 years at quarter end. Finally, at year end our unencumbered NOI remains favorable at over 93% of our total NOI.

With that, I’ll turn the call back over to Will.

Will Eglin: Thanks Beth. I will now turn the call over to the Operator, who will conduct the question and answer portion of this call.

Operator: your line is open, sir.

Anthony Paolone: Oh, okay. Thanks, good morning. First question, can you provide any color on what the yield on the development delivered in the fourth quarter, perhaps net of any maybe promote, and also maybe just give us an update on where you think the overall pipeline as it stands today will end up being. That would be great.

Brendan Mullinix: Okay, sure. It’s Brendan. The development yield on the stabilized asset that delivered on a cash basis is in the mid-5 range, 5.5. Just as a refresher, we are developing that in a joint venture with a merchant builder partner. Promote, if any, will be calculated once the three buildings are 80% stabilized, but that is the development yield. With respect to the balance of the portfolio, we’ve guided to similar yields in the low to mid-5s. With that said, there may be opportunities to exceed that, just based on rent growth that’s occurred during the development process and in a rising cap rate environment, the promotes would be expected, all other things being equal, to the lower original increase promote yields.

Anthony Paolone: Okay, got it. Then on the disposition side, you mentioned selling seven industrial properties this year. Any order of magnitude? I don’t know if you mentioned the dollar amounts or not.

James Dudley: We did it. The NOI from that was about $18.3 million, Tony, so we want to have enough assets in the market to cover our development spend this year, and hopefully we can keep working our leverage down a little bit too. But I think we have to wait and see in terms of giving guidance to valuation, and I would expect those dispositions to probably be back-loaded as the year progresses.

Anthony Paolone: Okay, and then I guess my last one maybe relates to still dispositions. You mentioned the tougher office environment in terms of sales, but I think 1701 was going to a condo converter or a resi converter of some sort. Did that fall out, or is it just taking longer? What’s happening there?

Will Eglin: I would characterize that transaction as having fallen out, despite media coverage, so that asset is fully leased and providing a lot of cash flow to us, which we’re happy to collect, and we’re certainly open to–you know, if that transaction comes back together, which is certainly possible, we’re happy to transact or, as I said, just continue to collect the rent and see what other options are available to us.

Anthony Paolone: Okay, great. Thank you.

Brendan Mullinix: Thanks Tony.

Operator: Thank you, and just a reminder, ladies and gentlemen, star-one please for any questions. We go next now to Todd Thomas of Keybanc Capital Markets.

Todd Thomas: Hi, thanks. Good morning. Just following up first, I guess on dispositions, can you share the cap rate on the Houston office disposition that was completed after the end of the year, and then just around some of the delays that you mentioned regarding additional office asset sales, realize the market there is a little bit fluid, but can you just maybe provide us with an update on the timeline more generally for additional office asset sales? Just looking for a bit more color there, perhaps. That would be helpful.

Beth Boulerice: Hey Todd, it’s Beth. On the Houston sale, the cap rate there was 7.9, and that’s both cash and GAAP cap rate on that one. We’re working the sale. In this environment, it’s tougher than we had anticipated. We had hoped to be out by the end of 2022, but we’re hopeful to make progress this year with the remaining four that we have.

Todd Thomas: Okay, and then with regards to the $11 million of annual NOI on those office assets, I realize that you don’t have any lease roll in ’23. Are you expecting NOI–any change in NOI in that bucket of assets throughout the balance of the whole period, or do you anticipate that to be relatively steady?

Beth Boulerice: It’s relatively steady for the year if they’re not sold, so as they get sold, that number will come down.

Todd Thomas: Sure, right. No, understood. Okay. Then over to the development, can you just talk a little bit about the demand for the assets that are–you know, the development assets, they’re all expected to be sort of completed here over the next couple of quarters. I’m just wondering if you could talk a little bit about the pace of leasing and the timeline for rent commencement and conversions to the operating portfolio.

James Dudley: Sure, this is James. It’s a little bit of a mixed bag by market. The velocity in Phoenix is extremely strong. I think we anticipate having a leasing outcome there in the fairly near term. The Columbus asset also has quite a bit of activity. The other assets are a little bit slower. That’s not to say that there isn’t a long pipeline of potential tenants in the market. I think the major change that we’ve seen in the market recently is just there was a feeding frenzy in ’21 and the beginning of last year for tenants concerned about not having space, and that pace has slowed some and it seems to be a little bit more methodical, so there continues to be a lot of interest, it’s just a little bit slower moving. I think generally across the board, it may takes us a little bit longer, there may be a six to 12-month downtime on some of the assets, but expect to have a couple of positive outcomes on the two assets I mentioned, hopefully much sooner than that.

Todd Thomas: Okay, so those two, we might expect to see some NOI come online in ’23, but for the balance of the portfolio, it sounds like it would be later ’23 or into ’24?

James Dudley: I think that’s a good generalization.

Todd Thomas: Okay. All right, great. Thank you.

Operator: Thank you Mr. Thomas. Ladies and gentlemen, just a quick reminder, star, one please for any questions. We’ll go next now to Jon Petersen at Jefferies.

Jon Petersen: Great, thanks. Maybe on the share buybacks, you guys did a little bit in the fourth quarter. Can you talk to us about the decision making there on when you pull the trigger on buybacks?

Will Eglin: Sure Jon. It really reflects our view of NAV more than anything else, but we’ve also wanted to keep an eye on our leverage and have a plan overall for the buyback to be leverage neutral, so having that forward equity transaction available to us provided us with some flexibility around the buyback last year, and also the opportunity to start to bring our leverage back down. We did buy a little bit of stock at a low price at the beginning of the quarter, but since then the share price has been grinding steadily higher and we haven’t been chasing the share price as the market has recovered.

Jon Petersen: Got it, all right. That’s helpful. Then I guess, where are you seeing private market cap rates move to, maybe for Brendan? I think the last time we spoke last quarter, it certainly seemed like you guys feel you’re getting better returns on development than acquisitions, but with cap rates rising, what are you guys looking for in terms of cap rates to, I guess, jump back into the acquisition market and view that as more attractive, and just at a high level where have you seen those cap rates move to?

Brendan Mullinix: Yes, I’ll say first that we’re still very much in a period of price discovery, so it’s hard to generalize about cap rates. What other people have said before and others have commented on, probably the biggest factor is the mark-to-market opportunity, so the shorter the lease and the better the mark-to-market opportunity, you’re going to see a smaller impact on cap rates relative to where we were before, despite interest rates. Prior to the move-in rates, we talked about across our more primary markets to some of the yieldier ones, the market being kind of in the low 3s to 4s, and I think today it’s sort of in the 4s and 5s, if that’s helpful. But again, it’s hard to be too specific. The lower yields would be the more in that range, the more primary markets, and all four alternatively a very quick mark-to-market opportunity.

Jon Petersen: Right, okay. Yes, that makes sense. Then just a point of clarification – on the ’24 maturities, you said a 20% to 30% increase is expected. Is that on a cash or a GAAP basis, and what kind of market rent growth are you expecting between now and then to base those assumptions on?

James Dudley: Yes, that’s on a cash basis, and that kind of includes escalations or market rent growth that’s on average at 6.5% for ’23 and 4.2% for ’24.

Jon Petersen: Okay. All right, that’s helpful. That’s all for me, thanks.

Operator: Thank you Mr. Petersen. Again ladies and gentlemen, just a final reminder today, star, one please for any further questions. We’ll pause for just a moment. We have a question now from John Massocca at Ladenburg Thalmann.

John Massocca: Good morning. You kind of mentioned on the disposition side of things, you’re looking to outside of a couple of markets. I guess maybe, where kind of–just thinking about geography, the core markets you see in the portfolio today and maybe what makes those attractive relative to either kind of larger gateway markets or some of the markets you’re looking to exit?

Will Eglin: Yes, the ones that we’ve identified as potential disposition exits are markets where we only have one or two assets, and where we haven’t been adding in our most recent portfolio repositioning. As an example, we mentioned a couple assets in Detroit that we were looking at exiting, one of which closed. The primary differentiators would just be where we see the most potential for NOI growth, and that’s where we’re focusing in terms of markets, those markets that have the best access to growing populations and strong logistics center attributes.

John Massocca: Then I guess maybe, is there a differential in the cap rate environment between some of those markets you’re exiting versus areas where you’re either doing development or maybe even longer term attractive from an acquisition perspective?

Will Eglin: Yes, we would expect that exiting a smaller market with less favorable rent growth prospects would in the market at higher yields, but we do think it’s important to continue to focus the portfolio in where we see the strongest growth opportunities.

John Massocca: Any kind of brackets around where that cap rate differential is, or–?

Will Eglin: I think that it’s–there in particular, I mentioned before that we’re–there’s just been so few transactions in the market, it’s really hard to peg it. I think that that sort of divergence between markets is particularly tricky right now. I think it’s a little early. As we work on thinking about the disposition plan, we’ll give further guidance.

John Massocca: Okay, that’s fair. That’s it for me. Thank you very much.

Operator: Thank you. We’ll take a follow-up question now from Anthony Paolone at JP Morgan.

Anthony Paolone: Thanks. Just one follow-up item on the data center lease, the land lease. Prior to that, was that land basis, were you capitalizing interest against that, or was that just–is this just purely incremental in terms of the rent?

Beth Boulerice: It’s the rent. It wasn’t–it was just in land before, there was no rent coming in before, any kind of incoming.

Anthony Paolone: Okay, and so–great, so then it sounds like, especially with the GAAP accounting on sales type lease or finance type lease, I guess it is, it sounds like that adds probably a couple pennies to earnings? Is that fair?

Beth Boulerice: Right, yes. On a cash basis, it’s going to generate $5.2 million a year, and on a GAAP basis for 2023, it’s going to generate $7.4 million.

Anthony Paolone: Okay, got it. Thank you.

Operator: Thank you. Ladies and gentlemen, it appears we have no further questions this morning. Mr. Eglin, I’d like to turn the call back to you for any closing comments.

Will Eglin: We appreciate everyone joining us this morning, and please don’t hesitate to visit our website or contact Heather Gentry if you would like to receive our quarterly materials, and in addition, as always, you may contact me or the other members of senior management with any questions. Thanks again.

Operator: Thank you Mr. Eglin. Ladies and gentlemen, that does conclude the LXP Industrial Trust fourth quarter 2022 earnings call and webcast. We’d like to thank you all so much for joining us and wish you all a great day. Goodbye.