Executive Summary / Key Takeaways

• LXP Industrial Trust has successfully transformed into a pure-play industrial REIT, shedding its office portfolio to focus on high-quality warehouse and distribution facilities in 12 target Sunbelt and Lower Midwest markets.
• The company holds significant internal growth potential, primarily driven by the lease-up of approximately 4.1 million square feet of available space, including three large vacant development properties, and capturing estimated mark-to-market rent increases of 18-23% on expiring leases through 2030.
• Recent financial performance in Q1 2025 demonstrated solid same-store NOI growth of 5.2%, reflecting favorable leasing outcomes and increased cash base rents, although overall revenue growth was tempered by property sales and vacancies.
• Management's 2025 Adjusted Company FFO guidance range of $0.61 to $0.65 per diluted common share is directly tied to the timing of leasing the vacant big box facilities, highlighting this as a critical near-term catalyst for earnings growth.
• While facing market uncertainties related to trade policy and tenant decision delays, LXP's strategic focus, asset quality, tenant credit strength, and disciplined capital recycling position it to capitalize on long-term demand trends like onshoring and benefit from a less competitive environment for Class A assets in its target markets.

The Focused Ascent: LXP's Industrial Transformation and Growth Catalysts

LXP Industrial Trust has undergone a significant strategic evolution, culminating in its emergence as a focused, pure-play industrial real estate investment trust. This transformation, marked by the divestiture of its legacy office portfolio, positions LXP squarely within the dynamic and growing logistics and distribution sector. The company's core business now centers on owning, acquiring, and developing Class A warehouse and distribution facilities, primarily under net leases where tenants bear most operating costs. This strategic pivot, completed with the sale of remaining consolidated office assets in 2024, allows LXP to concentrate its expertise and capital on a sector benefiting from secular tailwinds.

Central to LXP's strategy is a deliberate focus on 12 target markets located within the Sunbelt and select Lower Midwest states. These regions, which account for approximately 85% of LXP's gross assets, are characterized by favorable demographics, robust population and job growth, business-friendly government policies, and critical logistics infrastructure. Furthermore, these markets are at the forefront of the onshoring trend, attracting significant investment in advanced manufacturing facilities, such as semiconductor plants in Phoenix, automotive facilities in Savannah, and pharmaceutical investments in Indianapolis. This geographic concentration provides LXP with deeper market knowledge, stronger relationships with brokers, developers, and tenants, and enhanced operational efficiency compared to a more dispersed portfolio.

Within the competitive landscape, LXP operates alongside larger, more scaled players like Prologis (PLD) and regional specialists such as Rexford Industrial Realty (REXR), First Industrial Realty Trust (FR), and EastGroup Properties (EGP). While LXP's scale (estimated 5-10% aggregate market share) is considerably smaller than Prologis's global footprint, its focused strategy allows for niche adaptability. LXP's multi-channel investment approach, including joint ventures for development, offers potential operational advantages, such as potentially lower development costs per project compared to some peers. However, LXP faces challenges in matching the operational efficiency and technological integration seen in larger rivals. For instance, while peers like Prologis and Rexford leverage technology for tenant management and property operations, LXP appears to have a lighter R&D focus in this area. This difference could translate to less efficient tenant management compared to Prologis and potentially slower tenant turnover compared to redevelopments by Rexford. The "so what" for investors is that while LXP's market focus and development approach provide specific advantages, it may need to enhance its operational technology to fully close efficiency gaps and maintain competitiveness against rivals leveraging advanced data analytics and property tech for tenant retention and operational optimization.

The broader industrial market environment provides both opportunities and challenges. While increased financing costs have tempered transaction and development activity, overall U.S. net absorption remained positive in Q1 2025 (23 million sq ft, with 19 million sq ft in LXP's target markets). New construction starts have slowed significantly, with the pipeline in LXP's target markets down almost 75% from its 2022 peak. This supply moderation, coupled with continued demand for modern, Class A facilities (which comprise 91% of LXP's portfolio), creates a favorable backdrop for leasing high-quality assets.

Performance Reflecting Strategy and Market Dynamics

LXP's financial performance in the first quarter of 2025 reflects the ongoing execution of its industrial strategy amidst a nuanced market. Total gross revenues for the three months ended March 31, 2025, were $88.86 million, an increase from $86.25 million in the prior-year period. This growth was primarily driven by a 3.15% increase in rental revenue to $87.89 million, benefiting from properties placed in service, recent acquisitions, and leasing activity. However, this was partially offset by the impact of property sales and vacancies.

Operational performance highlights include a strong 5.2% increase in same-store NOI for Q1 2025 compared to Q1 2024, primarily attributable to growth in cash base rents. The same-store portfolio maintained high occupancy, standing at 99.2% as of March 31, 2025. This metric underscores the stability and embedded growth potential within LXP's established asset base.

Expenses saw increases in Q1 2025, with depreciation and amortization rising to $50.51 million due to portfolio changes, and general and administrative expenses increasing to $10.39 million, influenced by higher employee compensation and corporate rent. Interest and amortization expense decreased slightly to $16.28 million, benefiting from debt repayments, though partially offset by higher interest on the Term Loan and reduced capitalized interest as development projects reached completion. A notable gain on the sale of real estate ($24.64 million) in Q1 2025 contributed significantly to net income, stemming from the disposition of one property.

LXP maintains a focus on balance sheet management and liquidity. As of March 31, 2025, cash and cash equivalents stood at $70.9 million, increasing to $110 million proforma for a property sale in April 2025. The company has access to a $600 million unsecured revolving credit facility, which remained fully undrawn at quarter-end. Net debt to adjusted EBITDA was 5.9 times, and management is targeting a reduction to the low end of the 5x to 6x range over time, primarily through EBITDA growth from leasing and rent increases. Debt management efforts included the repayment of $50 million of the Term Loan in Q1 2025 and prior interest rate swaps to manage exposure to variable rates.

Strategic Execution and Outlook

LXP's strategic initiatives are centered on leveraging its industrial focus and market concentration to drive future growth. A key priority is the lease-up of vacant space, particularly the three large big box development facilities, which management explicitly identifies as a critical component for FFO growth. As of Q1 2025, the company had approximately 4.1 million square feet available for lease across its portfolio.

Capital recycling remains an active part of the strategy. Year-to-date, LXP has opportunistically sold two industrial assets for approximately $75 million at an average cash capitalization rate of 4.1%, including a $35 million disposition in Q1 2025. These sales, primarily from non-target markets, are intended to maximize value and fund reinvestment into the 12 core markets. However, disposition activity was temporarily paused in Q1 2025 due to market uncertainty related to trade policy.

Development and redevelopment continue, albeit selectively. The company commenced the redevelopment of a 250,000 square foot facility in Richmond, VA, in Q1 2025, with an expected additional investment of $41 million. This project aims to reposition the asset into a standalone facility with potential market rent uplift of approximately 70%. LXP also holds interests in land parcels for future development, including 315 acres in Phoenix with potential for up to 5 million square feet of industrial space, where build-to-suit opportunities are the current focus.

Leasing activity remains a core driver. In Q1 2025, LXP executed lease extensions covering 1.1 million square feet, achieving a significant increase in average fixed rent from $6.37 to $7.85 per square foot on these extensions, with an average annual escalator of 3.6%. The company sees substantial embedded value in its portfolio's below-market rents, estimating a mark-to-market opportunity of approximately 18% on leases expiring through 2030, and 30-35% on the remaining 2025 lease roll. While management acknowledges the potential for lower tenant retention and increased downtime in 2025 due to market conditions and tenant decision delays, they believe the quality and location of their assets position them well to backfill vacancies at higher market rates.

Management's outlook for 2025 reflects these dynamics. They maintained their guidance for same-store NOI growth at 3% to 4%. The Adjusted Company FFO guidance was also maintained at $0.61 to $0.65 per diluted common share. The key assumption underpinning this range is the timing of leasing the three large vacant big box facilities: the low end assumes no leasing of these assets in 2025, while the high end assumes all three commence leases in the second half of the year. This clearly signals that progress on these specific vacancies is paramount to achieving the upper end of their earnings expectations. Expectations for general and administrative expenses remain unchanged at $39 million to $41 million.

Risks and Challenges

Despite the positive strategic positioning, LXP faces several risks. Market uncertainty, particularly stemming from trade policy and its impact on tenant decision-making, could continue to slow leasing velocity and potentially lead to longer periods of downtime or lower retention rates than historically experienced. Increased financing costs could negatively affect transaction activity and development economics. Development projects inherently carry risks, including potential supply chain issues that could impact costs and timelines. While LXP manages concentration risk through diversification across markets and tenants, reliance on major financial institutions for cash balances presents some counterparty risk. Furthermore, while the company believes the likelihood is remote, guarantees on non-recourse debt for non-consolidated entities represent a contingent liability.

Conclusion

LXP Industrial Trust has successfully executed a transformative strategy to become a focused industrial REIT concentrated in high-growth Sunbelt and Lower Midwest markets. This strategic pivot, completed in 2024, positions the company to capitalize on favorable long-term demand trends in the logistics sector, including the significant investment in advanced manufacturing and onshoring initiatives occurring within its target regions.

The core investment thesis for LXP hinges on its ability to unlock embedded value within its portfolio. This is primarily driven by the substantial mark-to-market opportunity on below-market leases and the successful lease-up of vacant space, most notably the three large big box development facilities. While the company faces near-term challenges related to market uncertainty and tenant decision delays, its portfolio of high-quality, well-located Class A assets and its disciplined capital allocation strategy, including opportunistic recycling of non-core assets into target markets, provide a solid foundation.

Management's 2025 guidance explicitly links earnings growth to the progress on leasing the vacant big boxes, making this a key factor for investors to monitor. While LXP may lag some larger peers in scale and operational technology integration, its focused geographic strategy and operational efficiency in areas like joint venture development offer distinct advantages. The successful execution of its leasing and capital recycling initiatives, coupled with continued favorable market dynamics in its target regions, will be critical in driving FFO growth and enhancing shareholder value in the periods ahead.