Lexington Realty Trust

Our stable outlook on Lexington reflects our expectation for relatively steady cash flow generation over the next two years, despite some near-term volatility from a small number of rent deferrals and pressure from the recession. This is supported by longer-term, triple-net leases and an increased focus on industrial properties, which have so far proven more resilient. While we expect Lexington to refine its portfolio by selling office assets and opportunistically acquiring industrial assets (especially if cap rates rise) in a leverage-neutral manner, we expect near-term activity to be slower because of market uncertainty. We project debt to EBITDA to increase slightly to the mid- to high-5x area, with fixed-charge coverage (FCC) improving to the high-2x to low-3x area. We could

...We expect Lexington Realty Trust to continue acquiring industrial assets, despite some near-term declines in activity amid market volatility. Lexington is in the midst of a multiyear effort to transition into a better-quality, single-tenant, net-leased, industrial-focused REIT. Industrial properties made up 83.2% of its gross real estate asset value as of March 31, 2020, up from 72.2% the prior year. While the real estate transaction market has slowed in recent weeks as a result of market uncertainty, Lexington still executed on some recycling activities, selling one office asset and acquiring one industrial asset after the first quarter closed. We believe Lexington could capitalize on more attractive prices for industrial assets (the company expects cap rates to rise modestly) to opportunistically increase its presence in select markets. That said, cap rates could compress over the longer term, with e-commerce demand holding steady and interest in domestic supply chains and manufacturing...

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