LXP Industrial Trust at Nareit REITweek: Strategic Focus on Growth

LXP Industrial Trust (NYSE:LXP) presented its strategic vision at the Nareit REITweek: 2025 Investor Conference on Wednesday, 04 June 2025. The company outlined its dedication to growth within the warehouse and distribution sector, emphasizing its modern portfolio and strategic market focus. While highlighting opportunities for organic growth, the company also addressed challenges such as tariff impacts on tenant behavior.

Key Takeaways

• LXP is focusing on 12 key markets, particularly in the Sunbelt and Lower Midwest.
• The company’s portfolio is modern, with half of its tenants being investment grade.
• LXP anticipates reducing leverage to 5x through leasing and organic rent growth.
• The company is optimistic about organic growth with annual rental escalations averaging 2.8%.
• LXP’s dividend growth strategy includes a $0.02 increase per year, with potential for more growth.

Financial Results

• Annual rental escalations average 2.8% through 02/1930, with rents 18% below market rates.
• A recent lease in Greenville, South Carolina, achieved an 8% development yield.
• Current leverage stands at 5.9x, with a goal to reduce it to 5x.
• Dividend growth strategy targets $0.02 per year, with potential for increased growth if the payout ratio falls below 80%.
• Recent property purchases were made at a 6% cap rate, with some sales close to 4% cap rates.

Operational Updates

• LXP’s strategy focuses on warehouse and distribution facilities in 12 markets, emphasizing the Sunbelt and Lower Midwest.
• The portfolio is less than ten years old, with approximately 50% investment grade tenants.
• DHL leased a building in Greenville for First Solar, achieving an 8% development yield.
• Overbuilding in Indianapolis in 2023 led to a recent increase in big box activity.
• Central Florida’s big box activity is slower than expected, but improvement is anticipated with population growth.
• Redevelopment of a 250,000 sq ft building in Richmond, Virginia, aims to achieve a 70%+ rent mark to market.

Future Outlook

• LXP prefers build-to-suit development projects but is considering speculative development of smaller boxes (150,000-350,000 sq ft).
• Supply growth is expected to remain constrained for the next 18-24 months.
• The company aims to reduce leverage to 5x through leasing existing projects and organic rent growth.
• Capital deployment will prioritize existing markets, focusing on Sunbelt markets like Phoenix, Houston, Dallas, and Atlanta.
• LXP might revisit dividend growth with an eye toward more growth than the current $0.02 a year if the payout ratio drops below 80%.

Q&A Highlights

• The company has been a buyer of properties at around a 6% cap rate.
• A 10-20% increase in rents would justify new construction.
• Warehouse escalators are generally above 3%, trending toward the 3% range.
• No anticipated consolidation among public players.
• Same store guidance for the year is 3-4%, driven by occupancy.
• Mark to market this year is about 30% to 35%.

For further details, readers are encouraged to refer to the full transcript below.

Full transcript - Nareit REITweek: 2025 Investor Conference:

John Peterson, Real Estate Research Team Lead, Jefferies: Alright. Good afternoon, everybody. My name is John Peterson. I lead our real estate research team at Jefferies. Really happy to have the LXP team here with us today for their formal company presentation.

To my right is Will Eglin, CEO, and to his right is James Dudley, EVP and Director of Asset Management for LXP. So why don’t we jump in? Will, maybe if you could just give us a brief intro into LXP and talk about how your portfolio is positioned compared to the peer group.

Will Eglin, CEO, LXP: Sure. You know, our our business strategy is focused on warehouse and distribution facilities in 12 markets, three of which are in the Lower Midwest, and the balance of our markets are in the Sunbelt. And our markets are characterized by very great logistics infrastructure, positive demographics, and they’re in states which have a friendly regulatory environment. So there’s no surprise to us given these attributes that these markets are also attracting a lot of investment in manufacturing. So we think that the footprint of our portfolio probably matches up best with a lot of the reshoring initiatives that are underway in The United States.

So if you think of our business, it’s pretty much large box distribution facilities. Our portfolio is less than ten years old, so it’s very young. It has very modern characteristics that are attractive to many different kinds of users. About half of the portfolio from a credit standpoint, we have investment grade tenants. So there’s a lot of very favorable attributes from that standpoint.

If we were here a year ago, we probably would have celebrated our final exit from the office business. But a year later, we would probably celebrate what that means from an operational perspective. And we’ve been putting up exceptional mark to market leasing spreads since then and generating a very good same store NOI growth. Some of the themes that we’ve been talking about at the conference here have been the impact of tariffs on tenant decision making. We’ve also spent a fair amount of time talking about the building blocks that we have for organic growth.

And at the moment, our leases have annual rental escalations in the move 2.8% through 02/1930. We think our rents are about 18% below market. So as we turn leases over, we’re going to have an opportunity to continue to mark revenue up as we have in recent years. We do have a couple of big boxes that we developed that haven’t leased yet. So there’s an opportunity for occupancy gains that will produce even more growth.

So we think we’re very well positioned from an organic growth standpoint. And as those assets lease up and more EBITDA is produced, our leverage will come down and our payout ratio will start to decline as well. So we think all of that combines to make, I think, a very good case that the outperformance that we’ve demonstrated compared to the peer group since we exited the office business will continue. The development business has been very good for us. We’ve had the three buildings that we were focused on leasing to sort of finish out leasing those buildings.

And we had one great success recently where we leased a building in Greenville, South Carolina at an 8% development yield. And that’s I think been viewed very positively by the market with about what we think is 400 basis points or so of outperformance since we announced that lease. So that suggests to us that we can get a couple big leases done that there’s going to be more asymmetric upside in our shares. So we think the company is very well positioned at the moment and are very excited about what we can do for shareholders going forward.

John Peterson, Real Estate Research Team Lead, Jefferies: Great. Why don’t we maybe dwell on that development lease? So congrats on the big development lease in Greenville. Maybe can you just talk a little bit more about how that came together, what type of tenant it is, and maybe a little more on the economics behind that.

James Dudley, EVP and Director of Asset Management, LXP: Yeah. Sure, John. So so we have a million square foot, a little under 1.1 in Greenville Spartanburg that we really recently did this leasing deal on. It’s a very fast paced deal. DHL is the tenant, and their ultimate user is First Solar.

So it was a need to bring solar panels into space, and it was a hedge against, you know, potential tariffs and and rising tariffs to begin with. And then they wanted to change a little bit as far as the flexibility goes of their potential use, and they went from a five year deal to a two year deal, which you look on the service, you’d prefer to have term. But I think in this circumstance, it was helpful for us for a couple of reasons. One, free rent is pretty typical right now in big box leasing, so we were able to limit that free rent and get income coming in almost immediately from the tenant. It also lowers the tenant improvement amount that we provide to the tenant, so it’s a lower CapEx outlay for us.

And we’re able to get a higher rent because short term deals typically will yield a higher rent. It was also a very fast paced deal probably from RFP coming in to getting the deal signed, took about six weeks. So we’re excited about that opportunity. And in addition to that, just kind of given the overbuilding in the big box market and a lot of these markets that we’re in, it gives us a good opportunity to potentially bridge from maybe a weaker market to a stronger market here in a couple of years when hopefully there’s some more demand and absorption of the space that we’re competing with.

John Peterson, Real Estate Research Team Lead, Jefferies: Okay. Great. Can you talk about like what the NOI yield was on that project? And you kind of alluded to the better economics in the two year deal, what it might have been on a five year deal. Like what was kind of the spread?

James Dudley, EVP and Director of Asset Management, LXP: So it probably so we were at 8%, which which is what Will mentioned before, and it probably would have come down to the high sixes Okay. On a five year. And and really that’s that’s related to a little bit of a compression in the market rent for a longer term deal and then also the additional CapEx that we would have had to spend to keep the tenant.

Will Eglin, CEO, LXP: Okay. Great.

John Peterson, Real Estate Research Team Lead, Jefferies: All right. Maybe just step back a little bit more on the macro side. There’s a lot of talk here about tariff and trade policy. So are you seeing any different tenant behaviors around that or anything that you expect to see? Yeah.

Sure.

James Dudley, EVP and Director of Asset Management, LXP: I’d put our tenant behavior into three buckets. Bucket number one was the pull forward, which we benefited from where some tenants want to get as much of their product into space as possible to mitigate against the tariff risk going forward. Two would be we’re hitting the pause button because we’re not sure what’s gonna happen. We’ve seen some of that, and that’s typically where there’s there’s China exposure. Hitting the pause button, let’s see what ultimately happens, and then we’ll reevaluate.

And then third is really just plowing through because there are broader supply chain requirements that these tenants have. We’ve seen that with some of the really big credits. You know, Amazon continuing to pursue space both from a leasing and an acquisition perspective. Walmart doing the same, and they’re continuing, you know, forward with their path kind of regardless of what happens with the the macro.

John Peterson, Real Estate Research Team Lead, Jefferies: Okay. Sounds good. What about maybe just some other macro trends that have been out there, kind of e commerce and onshoring demand? Is there anything to point out to that you’ve seen in terms of onshoring supply chain demand?

James Dudley, EVP and Director of Asset Management, LXP: I I think Will pointed out. Our our markets are definitely gonna benefit. I think it’s early on in that process. I’ll point out a couple. You know, Phoenix is one of our largest markets.

You have Taiwan Semiconductor, and and part of that is is coming online now, but there’s still additional phases that need to come on, and I’m and and their ultimate building out of that. It went from a $40,000,000,000 investment to now they’ve announced, I think, a hundred and 65,000,000,000 in different phases. We’ve started to see some of the suppliers come into Phoenix, but it hasn’t been a huge story of the demand driver yet, so we think it’s coming. Hyundai and Savannah is another good example. We haven’t had any direct leasing that’s occurred in our second generation property, but we did acquire a property there that has a supplier to Hyundai.

So we know it’s coming. We know it’s gonna be a factor in demand going forward and hopefully tightening of these markets as more of this manufacturing comes online.

John Peterson, Real Estate Research Team Lead, Jefferies: Okay. And then maybe a final question on maybe tariff policy. Are you seeing or do you expect to see retailers and suppliers build inventory with all this uncertainty?

James Dudley, EVP and Director of Asset Management, LXP: I do. I think to a degree, I think it’s the smart thing to do make sure that you have the ability to fulfill the needs of your customers.

John Peterson, Real Estate Research Team Lead, Jefferies: Got it. Okay. Maybe coming back to the development leasing. So now you have a couple large million square foot projects, one in Indianapolis, One in Central Florida. Can you talk about what the activity has been like around those projects?

James Dudley, EVP and Director of Asset Management, LXP: Sure. So Indianapolis, for those who aren’t familiar, was definitely very overbuilt in in 2023. They delivered about 30,000,000 square feet in that year. And then the big box leasing got really slow. So there was nothing that was really leased up until late last year of anything over 500,000 square feet from January of twenty twenty three.

But recently, there’s been a massive pickup in big box activity there. In our particular submarket, there’s been a large 800,000 square foot lease that was signed, another one that’s on the finish line, and then some acquisition activity that would really start to shrink the availability in that submarket. And then just generally speaking, I think it’s you have the FedEx out there, and it’s a huge logistics market that’s gonna continue to attract large users because it can reach such a large portion of the population within a day’s truck drive. So I think it was a little bit of a blip in the market, but activity has definitely picked up there. Moving to Florida, you know, Central Florida’s big box activity has been a little bit slower than we’d like.

We’ve we’ve had tire kickers here and there on that particular box, but but nothing that’s stuck yet. We are very bullish on Florida overall. It’s gonna continue to be a population growth story and a move to consumer because historically you have a situation like where Atlanta would essentially supply Florida, but with the population growth and the need to be closer to consumer to meet those delivery needs, there will be a continuation of big box need in Florida to follow that population. Okay.

John Peterson, Real Estate Research Team Lead, Jefferies: What I guess, how do we think about development in the future? Like, how might you approach future development projects? Are you only looking to do build to suit? What, you know, what would it take to build on a speculative basis?

Will Eglin, CEO, LXP: Well, at at the moment we have a preference for build to suit because we can essentially get development yields without without taking the leasing risk. We we do have land bank of over 500 acres. And, you know, there will be a time and place where putting that into service via spec is appropriate. I don’t think that rents are quite there to justify construction costs at the moment, but that will be an opportunity for us to put the land bank into use and produce yields above where we can find them in the auction market. When we restart the development business, we’ll probably will start with some smaller boxes in the sort of 150,000 to 350,000 square foot area.

That seems to be where the the math is gonna, you know, pencil soon as with respect to spec development, you know, beginning to make sense for us. And I think but in in the near term, leasing those two big buildings, I think, would be preferable compared to starting new new spec at the moment.

John Peterson, Real Estate Research Team Lead, Jefferies: Okay. And and how are you seeing supply growth trend across your markets right now? Are there are there areas where it’s getting better, quicker? You know, where are some of the more pressure points in terms of oversupply?

James Dudley, EVP and Director of Asset Management, LXP: I don’t know about well, so supply is is still constrained. We haven’t seen a lot of new supply come out of the ground. There still is the the tail from the big slug of supply that should hopefully deliver this year, ultimately coming down from there being about 750,000,000 square feet under development to now under 300, so there still is a little bit coming on. The good news about it is is even if the supply demand dynamics kind of correct themselves, which we think they will over the near term, you know, over the next twelve months and start to to get a little bit tighter where it would make sense from a supply demand dynamic to start building again, you have these other major drivers that make it more difficult with all the data center development you have going on, the advanced manufacturing. So those things are gonna keep prices high and also take away some of the ability to move quickly.

So I think, you know, we’ve probably got a window of a good eighteen to twenty four months kind of minimally before we start to see anything of any real significance. Okay.

John Peterson, Real Estate Research Team Lead, Jefferies: Got it. On the last call, you guys talked about a redevelopment that you commenced about two on a 250,000 square foot building in Richmond, Virginia. Can you just talk a little more about that? What kind of returns you’re expecting and what the impetus was for that investment?

James Dudley, EVP and Director of Asset Management, LXP: Sure. It was part of a million square foot four property site that we had that was leased to Philip Morris in Richmond. They had the ability to give one of the properties back. We bought it at a really low rental basis, which was great. So we put it into our redevelopment pool because we need to do some things from a power perspective, from a truck parking and spec speculative office perspective to make it stand alone.

We’re really excited about that project because it’s an opportunity to take a very low rent and then turn it into probably a 70 plus rent mark to market.

John Peterson, Real Estate Research Team Lead, Jefferies: Got it. Okay. Where would you put the gap between market rents and replacement rents now with kind of rising costs of material and labor?

James Dudley, EVP and Director of Asset Management, LXP: You know, I think it’s dependent on the property type and the location and kind of the risk profile around what you’re looking to do, but I’d peg it between, you know, 1020%.

John Peterson, Real Estate Research Team Lead, Jefferies: Okay. Do you have any questions from the group that I have with you? Yeah. Sure.

James Dudley, EVP and Director of Asset Management, LXP: Go ahead. Yeah. At what cap rates are you guys a buyer

John Peterson, Real Estate Research Team Lead, Jefferies: of properties? So the question was at what cap rate are you guys a buyer of properties?

Will Eglin, CEO, LXP: Last year, we we purchased at around a 6% cap rate, and that was, you know, close to in line with some things that we sold out of that were outside of our 12 market focus. So we want to continue to do some capital recycling where we’re, you know, creating liquidity from assets that are outside of our target markets and getting more scale in our target markets. We haven’t bought anything this year. When we got to Liberation Day, we sort of took a pause, but we made a couple of really good sales at close to four percent cap rates earlier in the year. So there would have been an accretive redevelopment into real estate, but we decided that cash was a better asset for us to hold at the moment.

And even on cash right now, you can earn a little bit more than 4% and it creates more options for us going forward. So we’ll revisit that stance as the year progresses, but we’ve sort of taken a wait and see attitude on both dispositions and purchases for the moment.

John Peterson, Real Estate Research Team Lead, Jefferies: So the question is how much would rents have to increase to justify new construction?

James Dudley, EVP and Director of Asset Management, LXP: Yeah. I think, again, it goes back to to what I said before about kind of the risk profile of the of what you’re doing and what the size is. And I I still like that kind of 10 to 20%

John Peterson, Real Estate Research Team Lead, Jefferies: range. Okay. Just one thing.

James Dudley, EVP and Director of Asset Management, LXP: So probably maybe more than five years ago, but historically, warehouse escalators were 2%. They were 2% forever. And then we had the real tightening of the market where you were getting those 2%. We’re turning into 4%, three point five %. And and as you mentioned, it also depends on the size too.

There’s been some downward pressure depending on the market that you have right now, but there’s still north of 3%. On the really big boxes, you’re gonna see somewhere probably between three and three and a half. And on the, you know, two fifty to three fifty, if you’re in a good tight market, you can still get three and a half to four. And our our in place escalators right now are 2.8%. So we’re we’re we’re trending towards, you know, getting into the threes going forward.

John Peterson, Real Estate Research Team Lead, Jefferies: Sure. Do you see any consolidation among the public players?

Will Eglin, CEO, LXP: I don’t see I honestly don’t see a great fit between any of the public industry. They’re all slightly different, have slightly different strategies. I don’t think there’s much of an argument that there should be any consolidation.

James Dudley, EVP and Director of Asset Management, LXP: So no is the short answer. I haven’t seen any major changes. The the major retailers are very active right now in taking down additional space. So, yeah, consumer spending is a huge I mean, that would be the one thing that would kind of stop the bus. Right?

But we haven’t seen any activity that leads us to believe that they’re anticipating that that’s coming. Yeah. I I I’m not sure about the consumer credit piece of it.

John Peterson, Real Estate Research Team Lead, Jefferies: I wanted to ask about your your same store guidance for the year is three to 4%. Can you give us the kind of the guidepost, the key variables that would push you towards the upper and lower end of that range?

Will Eglin, CEO, LXP: It’s really driven by occupancy more than anything else. Like, the the low end of the range contemplates occupancy declining by about a 50 basis points, and the upper upper end is 75 basis points. So there aren’t many moving at this point.

John Peterson, Real Estate Research Team Lead, Jefferies: Well, maybe a more direct way to ask about that, like how are you feeling about the lease expiration schedule for the balance of the year? What are kind of the big leases that need to be renewed?

Will Eglin, CEO, LXP: Well, the good news is we don’t have much role, which I think has been helping us relative to our peers. But we will have some move outs in the back half of the year. And we think our mark to market this year is about 30% to 35%. There may be some delay in terms of re letting letting real estate, but all the real estate, we get any back, we’ve got a really good opportunity to lease it well. So I don’t know if you want to comment on anything more specific.

James Dudley, EVP and Director of Asset Management, LXP: No, I think you covered it.

John Peterson, Real Estate Research Team Lead, Jefferies: A couple of balance sheet questions. So the leverage is at 5.9 times today. Can you give us kind of an indication on where that might go once the Indian Central Florida projects are leased and kind of where’s the long term goal for leverage?

Will Eglin, CEO, LXP: Yeah. I mean, we’re we’re trying to move our leverage down to about five times, and we think that that will be, you know, very good for the valuation of our shares from a multiple standpoint. So leasing those two buildings and, you know, we have a couple of other small developments still to lease, but that gets you down below five and a half times. And if you have a couple of years of good contractual rent growth and mark to market, you’ll we can get to five organically without having to do anything, you know, around selling assets or doing anything dilutive to do so. So we’ve got good visibility on on that path.

John Peterson, Real Estate Research Team Lead, Jefferies: Okay. And then just curious how you guys approach dividend policies. Your current payout ratio is very conservative, but does that kind of put a lot of upward pressure on where that dividend might need to grow to as AFFO grows?

Will Eglin, CEO, LXP: I think, you know, we’ve been growing the dividend at sort of $02 a year. And if we can get our payout ratio down sort of below 80%, that might mean that we revisit dividend growth with an eye toward more growth than that. So that’s that’s our thinking, and that’s that level of dividend increase has been consistent with what we’ve

John Peterson, Real Estate Research Team Lead, Jefferies: done in recent years. Any other questions from the audience? In terms of markets where you maybe can you talk a little more about the markets that you find most attractive to deploy capital? I think in some of our conversations in the past, you guys had talked a lot about the Sunbelt markets. Has anything evolved there, and is there any maybe specific markets that you find particularly attractive right now?

Will Eglin, CEO, LXP: Yeah. About 75% of the portfolio is in in the Sunbelt markets, and, you know, we have varying degrees of appetite for for all of them. Phoenix is our biggest market, and it’s where we have our biggest land bank. And and, you know, we love the market. We have more appetite for there.

But, you know, we would invest in Houston and Dallas and and Atlanta as, you know, Savannah’s got some supply issues at the moment, but we recently looked at a build to suit in Savannah that, you know, was very interesting to us, but somebody else liked it liked it at a better price. So the nice thing about having a 12 market focus is we feel like we’ve got the market knowledge and the relationships to deploy capital across a whole range of opportunities regardless of lease term or occupancy points. So we can, you know, be a capital allocator to the best return opportunities in these markets by being, you know, specifically focused on them.

John Peterson, Real Estate Research Team Lead, Jefferies: Okay. Sure.

Will Eglin, CEO, LXP: Do you need new markets that you might consider or are you starting to deal? Not not at the moment. I think our our focus really is on, as as I said, you know, moving our capital that isn’t in these markets, you know, into deeper positions. And if we look at a market, we want it to be one that, you know, is is attractive for certain reasons, but also one where we think we can get meaningful scale, and that’s not easy

James Dudley, EVP and Director of Asset Management, LXP: Yeah. Sure. So market rent growth is funny because it’s really a submarket question more than it is an overall market question because I would point to Dallas, I would point to Phoenix. However, if you kinda look at the the overall market, there’s some exposure to big box there that we don’t have, and there’s also a massive amount of development in those markets that’s going on. But if you look at what we have in those markets, we have the right size with a really good rental basis.

So we’re looking at significant double digit rental growth for our particular properties in those markets. So we continue to like those markets. And to expand on what Will said before about the markets we want to invest in, we’re really looking for logistics friendly markets that have a lot of prologistix attributes, airports, intermodal, ports to an extent, but also massive population growth that’s gonna continue to drive the need for product.

John Peterson, Real Estate Research Team Lead, Jefferies: So you guys I think among industrial peers, have the highest percentage of IG rated, investment grade rated tenants. Can you talk about that as a priority long term when you think about signing leases in the future, How you kind of factor in credit quality into those into the tenants that you choose to lease to?

Will Eglin, CEO, LXP: Honestly, I think it’s more a byproduct of of what we invest in. And, you know, when when we did all the recycling of capital out of office, the focus was to invest in new construction. So we were often buying buildings that might have been spec that turned into single tenant investment during the construction period or shortly thereafter. So, you know, what kind of tenancy is attracted to things that are newly built? Tends to be a company that’s growing and has a good business.

So and and since our focus is on larger boxes, our average facility size is a little bit less than 500,000 square feet. There are substantial businesses in them. So, you know, we don’t really have a target from a credit standpoint. The important thing is to own real estate that good companies want to be in for whatever reason.

John Peterson, Real Estate Research Team Lead, Jefferies: That makes sense. Alright. I think that’s a good place to end it. Thanks Will. Thanks Thanks

Will Eglin, CEO, LXP: everybody.

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