Lexington Realty (LXP) Buys Industrial Portfolio For $200M

Lexington Realty Trust (NYSE:LXP) announced the acquisition of a three-property industrial portfolio, spanning 3.2 million square feet, for around $200 million.

The portfolio consists of best-in-class distribution/warehouse centers. These newly constructed facilities carry an initial GAAP yield of 6.5% and cash yield of 5.8%, and are well situated along the Interstate 40 in Tennessee and Mississippi.

All three properties are 100% net leased to well capitalized tenants, including Nissan North America, Inc., Kellogg’s Sales Company and McCormick & Company (NYSE:MKC), Inc. The remaining weighted-average lease term of the portfolio is approximately 9.8 years.

To fund this acquisition, Lexington utilized term loans and borrowings under its revolving credit facility, which was subsequently upsized by approximately $200 million.

The first property in the portfolio is a warehouse and light assembly center, spanning 1.5 million square feet. It is located in Smyrna — a premium logistic hub of Nashville, TN. Net leased to Nissan for 10 years, this property serves as a crucial facility for its business.

The second industrial property is a distribution center situated on the I-40 corridor in Jackson, TN. The 1.1 million-square-foot center is leased to Kelloggs Sales Company, and provides extra wide truck courts and around 500 trailer stalls.

The third property is another 615,600-square-foot distribution facility located in the Memphis industrial hub in Byhalia, MS. It has easy access to railways and interstate routes. The property is leased to McCormick & Company for nearly 10 years.

The above discussed acquisition reflects Lexington’s strategy to enhance its portfolio by focusing on strategic in-fill buyouts in upscale markets. The company is actively making opportunistic investments in trophy assets. In fact, year to date, its investment volume, including all completed transactions and commitments, totals approximately $675 million. These investments have initial GAAP and cash yields of 7.3% and 6.4%, and a remaining weighted average lease term of 13.3 years.

Although these capital intensive investments may strain Lexington’s balance sheet, prudent selection of assets is likely to help it fortify its position in the industrial real estate space and drive net asset value.

The company’s 2017 funds from operation (FFO) per share estimates remained unchanged in a month’s time. Its stock has declined 4.4% year to date, underperforming 4.1% growth registered by the industry it belongs to.

Currently, the stock carries a Zacks Rank #3 (Hold).

Stocks to Consider

Better-ranked stocks in the REIT space include Seritage Growth Properties (NYSE:SRG) , Sabra Healthcare REIT, Inc. (NASDAQ:SBRA) and Communications Sales & Leasing, Inc. (NASDAQ:UNIT) . While Seritage and Sabra Healthcare flaunt a Zacks Rank of 1 (Strong Buy), Communications Sales & Leasing carries a Zacks Rank of 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Seritage’s 2017 FFO per share estimates inched up 0.5% to $2.01 in the past 60 days.

Sabra Healthcare’s 2017 FFO per share estimates climbed 3% to $2.38 over the past month.

Communications Sales & Leasing’s 2017 FFO per share estimates climbed 14.4% to $2.54 in two months’ time.

Note: All EPS numbers presented in this write up represent funds from operations (“FFO”) per share. FFO, a widely used metric to gauge the performance of REITs, is obtained after adding depreciation and amortization and other non-cash expenses to net income.

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