Good morning, and welcome to the LXP Industrial Trust Third Quarter 2023 Earnings Conference Call and Webcast. Please note that this call is being recorded. I will now turn the call over to Heather Gentry, Investor Relations. You may begin your conference.

Thank you, operator. Welcome to LXP Industrial Trust Third Quarter 2023 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 statements. 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 unitholders 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 third quarter results. I will now turn the call over to Will.

Thanks, Heather. Good morning, everyone. We had a successful third quarter driven by meaningful progress on office sales, additional leasing in our development portfolio, rental increases, and further leverage reduction. Both our Philadelphia and New Jersey office assets were sold during the quarter for gross proceeds of approximately $48 million. The remaining office assets in Fort Mill, South Carolina, are currently being marketed for sale. As we've discussed previously, the Palo Alto, California ground lease will expire in December. We've nearly completed our office sales with the two Fort Mill properties representing just 0.2% of gross book value. Office sale proceeds were used to retire line balances, leaving our $600 million revolver fully available as of September 30. Our net debt to adjusted EBITDA at quarter end was 6.2x, a substantial reduction from 7.1x in the third quarter of 2022. Leverage would have been 5.8x net debt to adjusted EBITDA with the pro forma stabilization of our 2023 leased development projects. As rents grow and our spec development pipeline continues to lease up, leverage is expected to decline further. Disposition proceeds from remaining office sales and industrial assets outside of our target markets may be utilized to keep our revolver available, further reduce leverage and capitalize on new investment opportunities, particularly in the build-to-suit area. On the leasing front, we've leased 5.8 million square feet through the end of October. During the quarter, we made further progress in our spec development pipeline by leasing our 305,000 square foot spec building in Greenville Spartanburg at an estimated stabilized cash yield of 7.2%, excluding Partner Promote. This brings year-to-date total spec development leasing to 1.9 million square feet at an average estimated stabilized cash yield of 7.5%, excluding Partner Promote. We continue to raise rents on second-generation new and renewal industrial leases with year-to-date leasing volume of 3.6 million square feet at attractive base and cash-based rental increases of approximately 39% and 24%, respectively. When excluding fixed renewals, base and cash-based rental increases were approximately 51% and 33%, respectively. Our average annual escalations are trending higher with the average annual escalator for industrial leases signed in 2023 at 3.5%. This improved internal growth profile, combined with marking rents to market, continues to drive same-store industrial NOI growth, which was 5% in the third quarter. This morning, we announced that our Board of Trustees authorized an annualized dividend increase of $0.02 per share. The new declared common share dividend, which represents an increase of approximately 4% over the prior dividend, will be paid in the first quarter of 2024. Finally, we're pleased to have published our 2022 corporate responsibility report. The report highlights enhancements made to our ESG and R program, and our demonstrated commitment to transparency and disclosure, utilizing established reporting frameworks, including SASB, TCFD, and GRI. We also improved our overall 2023 GRESB Real Estate Assessment score and maintained our first place ranking among our peer group with an A and public disclosure. With that, I'll turn the call over to Brendan to discuss our investments in more detail.

Thanks, Will. Starting with our development portfolio. The core and shell build-out of our remaining development projects are now largely complete. Our approximately 488,000 square foot pre-lease facility in Phoenix is expected to complete later this quarter and be placed into service in the first quarter of 2024. Additionally, the core and shell build-out of our 250,000 square foot new project in Columbus is expected to be completed in the first quarter of 2024 for an estimated cost of approximately $29 million. Year-to-date, we've invested approximately $100 million on development, which included $36.5 million in the third quarter. We anticipate investing approximately $72 million more in these projects, excluding partner promotes. Our non-lease development pipeline currently represents 6% of our gross asset value, and we expect this number to decline below our target of 5% as we continue to lease this portfolio. Moving to development leasing. During the quarter, we leased our approximately 305,000 square foot facility in Greenville Spartanburg for a little over five years with 3.5% annual rental bumps. The lease term includes a five-month free rent period with the tenant expected to take occupancy in December. Additionally, our 1.1 million square foot project in Columbus that was leased earlier this year was placed into service subsequent to quarter end. We also leased approximately 58,000 square feet at one of our buildings in our two-building 271,000 square foot development project in Ruskin, Florida, in October. The five-year lease is expected to commence in January 2024 at a starting rent of $9.95 per square foot with 4% annual bumps. We continue to see interest at our remaining completed spec development properties, although more robust activity is for our under 250,000 square foot spaces given the modest oversupply of Big Box product currently in the market. Also during the quarter, we completed the forward purchase of our newly constructed approximately 124,000 square foot facility in the Dallas market for $15 million. Leasing interest has been strong at this facility. As we think about additional growth opportunities on the investment front, our focus is likely to be on build-to-suit, and we are reviewing prospects in this area. Given the constrained capital market environment with few construction starts, we anticipate build-to-suit activity to pick up. We believe we are uniquely well-positioned to capitalize on these opportunities given our long track record in this space, our strong developer relationships, and our well-located land bank. With that, I'll turn the call over to James to discuss leasing.

Thanks, Brendan. Quarter-over-quarter, we are seeing some moderate softening in tenant leasing demand across U.S. logistics markets. However, leasing continues to get done albeit at a slower pace as tenants take longer to make decisions and some oversupply in certain markets and submarkets is present. As Brendan mentioned, the Big Box sector, in particular, has experienced an oversupply of product, creating a more competitive market environment for our larger development projects. We would expect this to dissipate over time as the impact of fewer new starts begins to put pressure on supply. Rents in our target markets grew approximately 15% in the third quarter, when compared to the third quarter of 2022. We currently estimate that our industrial portfolio's in-place rents are approximately 24% below market. As we approach 2024, we've already completed 2.9 million square feet of 2024 lease extensions at a base cash rental increase of 16.1% or 24.3% when excluding fixed renewals. We expect the remaining 3.7 million square feet of 2024 lease expirations, of which almost all are in negotiations, to produce a cash-based rental increase of 20% to 30% based on current negotiations and brokers' estimates. Our stabilized industrial portfolio was 99.2% leased at quarter end, down slightly compared to last quarter due to a move-out in Houston. We've had promising activity at the site. In the third quarter, we signed a five-year lease renewal with the current tenant at our 408,000 square foot facility in Duncan, South Carolina, in which we increased cash base rent approximately 16% or 3.5% annual bumps up from 2%. We also signed a new five-year lease with 4% annual rent bumps at our facility, bringing the building to full occupancy. Subsequent to quarter end, we continue to experience strong leasing volume with approximately 1.1 million square feet of new leases and extensions signed in October. Notable activity included a ten-year lease extension with 4% annual rental bumps at our approximately 500,000 square foot facility in the Dallas market. The new starting rent represents a 32% increase over the prior rent. We also signed a five-year lease with a fixed renewal rate at our 341,660 square foot facility in Spartanburg, South Carolina. There are no more fixed renewals for this tenant going forward, and the rate will convert to market when the lease expires. Finally, we addressed existing vacancy in our Plant City, Florida facility, where we leased the remaining approximately 180,000 square feet for 12 years or 3.5% bumps. With that, I'll turn the call over to Beth to discuss financial results.

Thanks, James. Third quarter revenue was approximately $85 million with property operating expenses of $15 million, of which approximately 95% was attributable to tenant reimbursement. Adjusted company FFO in the quarter was $0.18 per diluted common share or approximately $52 million. We are increasing the low end of our adjusted company FFO guidance range by $0.02 to a revised range of $0.68 to $0.70 per diluted common share. This guidance range considers the timing of development lease-up and sales volume among other items discussed on today's call. Our two remaining office assets in Fort Mill were held for sale as of September 30, 2023, and as mentioned, the Palo Alto office asset will revert to the ground owner in December. These assets, along with the two office assets sold during the quarter, contributed $0.06 per share of annual FFO. Third quarter G&A was $8.6 million, and we still expect 2023 G&A to be within a range of $35 million to $37 million. At the end of the third quarter, our same-store industrial portfolio was 99.1% leased and same-store industrial NOI increased 5%, when compared to the same time period in 2022. Year-to-date, same-store NOI is 4.5%, and we continue to anticipate our 2023 industrial same-store NOI growth to be within a range of 4% to 5%. At quarter end, approximately 99% of our industrial portfolio leases had escalations with an average annual rate of 2.6%. As Will mentioned, our $600 million unsecured revolving credit facility was fully available as of September 30, 2023. Our consolidated debt outstanding was approximately $1.5 billion at quarter end, with a weighted average interest rate of 3.3% and a weighted average term to maturity of 5.8 years. Our fixed rate debt percentage was 91.3% at quarter end. Finally, we are reviewing refinancing options for our upcoming debt maturities, specifically our $199 million unsecured bond, which expires in June 2024, and our $300 million term loan expiring in January 2025. We expect new rates to be in excess of our current rates given the state of the financing environment. So we anticipate that interest expense will increase as we address these maturities. With that, I'll turn the call back over to the operator, who will conduct the question-and-answer portion of this call.

Our first question comes from Anthony Paolone with JPMorgan.

Maybe first one for James. Can you maybe talk a bit more about just the changes in demand for Big Box space? And particularly, just curious, as we look out to '24 expirations, do you think the reduction in demand has an impact on existing Big Box tenants? Or do you think this is just to fill incremental space at this point?

Tony, so yes, the slowdown is definitely on the larger box space. But I would say, at least in our portfolio, we've seen it more just on the number of tenants that are looking at our large spec development pipeline, that being in Greenville-Spartanburg. And there's just added competition too. So there are fewer tenants to go around. We haven't seen it really trickle down to our renewals. We've done a number of large building renewals recently, and we have some others that are coming up. And we anticipate we're going to see a strong mark-to-market on those as well and that we're going to retain those tenants. I think the difference is, is just the spec development properties that we have are just in submarkets that have a little bit more exposure to new product, and we've got some more infill locations with the renewals that are performing better just because there isn't as much competition.

Okay. So as we look to some of the bigger expirations in '24, you still feel pretty good about those just staying and getting your mark-to-market on those?

We do. We've only got two known move-outs at this point. They're both small, 118,000 square feet in the suburb of Memphis. We've got good activity on it. That lease expires in January of next year. And then we've got a 58,000 square foot lease that's coming off towards the back end of next year in, Carrollton, which is a suburb of Dallas that we expect to have great activity and a really strong mark-to-market on. Other than that, we are anticipating renewals for the tenants that we have rolling.

Okay. And then maybe for Beth. Just can you remind me with the spec developments finished earlier in the year, when do interest or other carry costs? Like when do those have to flow through the P&L?

Tony. Yes, once the property is substantially complete, we will capitalize interest up to a year and until it is 90% occupied.

Okay. So for a couple of those bigger boxes, like if we don't see them getting leased in the next quarter or so, we should start to let that flow through, I guess.

Right. Once they've come online, once they were substantially completed at the beginning of this year, it will be a year from there if they're not leased.

Our next question comes from Todd Thomas with KeyBanc Capital Markets.

I just wanted to follow-up a little bit sticking with the leasing demand and, I guess, the discussion from the prior question. Can you talk a little bit about the leasing pipeline and demand for the spec developments today that are substantially complete, just what the expected time line might be to get those leased up, what tenant demand and interest looks like today?

Sure. This is James again. On the smaller ones that we have - so the South Shore, the one in Tampa. We've got significant activity there. We did just do the 305,000 square foot lease in Greenville; the forward purchase we did on the 124 in Dallas has a lot of really good activity. So the smaller size has very strong activity. Our larger buildings have activity. And as far as the timing goes, it's just really hard to peg it. We have activity where we could have something done in the near term on a couple of them or we could miss out on those opportunities potentially, and we could have a little bit of a prolonged downtime. So again, just very hard to peg, but it's not that there's no activity. There just isn't as much as there was.

Okay. And then Beth, in terms of the company's cost capitalization policies, if we were to assume that there is no leasing completed at any of the developments throughout 2024, can you just help us sort of frame up what the FFO impact might look like in '24 as we think about the year ahead just with the capitalized interest burning off?

Right. So yes, the capitalized interest will burn off based on the schedule; if you look on like Page 13 of our supplement, we have the base building completion dates for them listed. So the capitalization will burn off a year from those dates, so you can plan on that. And then what we'll do is end up picking up some operating expenses like real estate taxes, and insurance that will be expensed along the way. It will depend from building to building how much those are. So it will just be incremental to which ones are leased or not leased.

Okay. All right. And then just last question, I guess, just with where leverage is today, and you talked a little bit about seeing some additional build-to-suit opportunities. Can you provide a little bit more detail on what you're seeing there and maybe discuss the appetite to move forward and be sort of opportunistic with additional investments?

Yes. In terms of what we see on the investment front, as I said in my prepared remarks, build-to-suit is looking like the most attractive option. I think that pricing in that space is probably in a cap rate range of 6.5% to 7%. We would anticipate getting solid escalations in the 3% to 4% range. So attractive straight-line yields as well. We've seen opportunities. We've built-to-suits in a couple of our land sites, including our Aetna site and then in Phoenix. And we also have reviewed build-to-suit opportunities from existing merchant builder relationships. So it does look like there's more activity in that space. And it's an area that we're going to continue to work on.

Our next question comes from Jim Kammert with Evercore.

Just kind of building on those prior questions. Given the lesser demand in the Big Box, let's say, could you pivot any of your land inventory to smaller requirements and still make the economics work? Or is there something about those entitlements or patterns in which you'd like to consume the land that would make you not do that? Just trying to see if you could use up that property.

Yes, our land bank will support different building formats. In the current environment, if we consider expanding the speculative pipeline, we would expect it to be in smaller format buildings.

Okay. Great. And just a small tactical issue. Again, you raised the dividend modestly. Was that more driven by an elective decision or really governed by the minimum taxable requirement payout?

No, it wasn't driven by tax, Jim. That was just consistent with our view around dividend growth supported by the strong same-store results that the portfolio is producing now.

Our next question comes from Mitch Germain with JMP Securities.

I'm curious about the office sale process, the buyer profile. Anything you could share with regards to that situation?

Not necessarily with respect to buyer profile; it's safe to say that the bid sheets for office have become very short. The buyer in Philadelphia was someone that we've been working with for a long time and had the transaction fall through once before. And the investor in Whippany was a completely different type of investor because of the use of that facility and the remaining lease term. I think in Fort Mill, the likely buyer will be someone who will turn that site into an industrial development. So three completely different types of buyers for what's left in that pool.

That's helpful. Are there any other fixed rent increases we need to be aware of in 2024?

There's one that remains, Mitch. It's a 4% increase in a relatively small building, 194,000 square feet in Monroe, which is outside of Cincinnati. That's the only one that remains. And that is tied into the numbers that we've kind of put forth on the 24%. So our 24% mark-to-market includes anything that's fixed.

Great. That's helpful. Is it too early to consider that some of the yield expectations for the larger development projects you're waiting on for lease-up might be lower than initially planned? Or do you believe that the leasing economics remain strong enough to compensate for the delays in leasing?

This is Brendan. I would say, I think it's early to revisit those expectations. We're not changing our guidance from what we had given previously with respect to the overall pipeline. Time will tell.

Our next question comes from Camille Bonnel with Bank of America.

Helpful commentary on the conversations you're having on the larger expiries next year. Can you also provide an update on Xerox, whose lease, I believe, is coming up next quarter?

Yes. We don't own the land. There's a ground lease that will expire at the end of the year. We had a ten-year lease with Xerox and had monetized all the rent through a credit tenant lease financing nearly ten years ago. We withdrew all our equity from that transaction a long time ago, and all the rent has gone towards principal and interest, resulting in funds from operations but no free cash flow. Therefore, we will experience an FFO loss moving forward, but there has been no free cash flow from that asset for nearly ten years.

Okay. And on a similar question around your office disposals. We've seen some REITs starting to take some pretty large impairments on their non-core office assets. And just looking at the implied yields and pricing you had this quarter seems to imply that valuations have moved quite significantly. So can you talk a bit more about how you're thinking about this? And any read-throughs to other office assets within your portfolio?

Hi, Camille. We just have the Fort Mill assets that are left, and we did impair them in the past. So we don't anticipate any additional impairments on the remaining office that we have at this point in our consolidated portfolio.

Okay. And finally, just around your development leasing, it looks like you're taking a multi-tenant approach on some of the new developments. And if we think about your core strategy, do you still see these assets having a place in your portfolio long term?

We really, the multi-tenant strategy has been on our smaller building in Tampa or smaller buildings in Tampa that were designed that way. All of our buildings are designed to be multi-tenanted. However, our preference is to continue to lease them to single tenants, and that's what we're going to try to do. If we find a situation where it makes sense to multi-tenant, then that's what we'll do as well. It's just situation by situation.

Seeing no further questions at this time. I will now turn the call back to Will Eglin for any closing remarks.

We appreciate everyone joining our call this morning. In summary, we continue to successfully execute our strategic initiatives and are making considerable progress in all areas of our business. We believe we are well positioned to build on our strong operating performance, and we are excited to continue producing great results for our shareholders. Please 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 for joining us today.

This concludes today's conference call. You may now disconnect.