Brookfield & CPPIB announced a take private deal for LXP Industrial $LXP this morning at $61.20 per share. A little surprising to me as management has historically strongly resisted pressure by activist investors to explore strategic alternatives or a sale after perennially trading at a discount to NAV. I hazard a guess management will have a go-forward role or nice golden parachute.

They are getting good pricing for the business. There are a few moving piece around unconsolidated JVs for less attractive net lease office and manufacturing properties that deserve a higher cap rate than the "core” warehouse and distribution portfolio. My breakdown indicates an implied value for the warehouse / distribution portfolio of ~5.7% cap rate / $90 PSF.

Management claim a 16% mark to market on leases expiring through 2030 so being optimistic and applying that to in-place NOI would be a mid-6% “market rent” cap rate.

This a relatively modern (~10yrs old), well-leased (~97%) big box portfolio (~500k sq ft average building size) located in the midwest and sunbelt. About 50% investment grade tenancy and just under a 5yr WALT. This is a segment of the US industrial market that has seen strong demand:

This represents an interesting transaction comp for US industrial in general and the mainland portfolio owned by $ILPT in particular. Similar, net lease lease, larger box (albeit ~150k sq ft average size vs. 500k sq ft for LXP) warehouse assets in big bulk distribution markets. ILPT’s mainland portfolio is 98% leased with a slightly-shorter, 4.2yr WALT, and similar, >50% investment grade tenancy.

I have valued ILPT’s mainland portfolio at a 7% cap rate / ~$85 PSF, which gave a $18 NAV per share or ~$13.50 after estimating $300m for a termination fee to RMR. If it were valued at a 6% cap rate (~$100 PSF), NAV would be $26 per share or $21 per share after the termination fee.

I don’t think ILPT should be valued this way - a take private would have to pull ILPT out of RMR’s cold dead hands - but this transaction provides another data point indicating that there is a strong margin of safety for ILPT from a real estate perspective…

Perhaps more importantly, it also indicates that large-scale institutional demand for US industrial is coming back at fairly aggressive pricing. This could give RMR options around the Mountain and Industrial Fund JVs to raise additional third-party capital at pricing that would increase their fee-earning AUM and also be accretive for third-party ILPT shareholders.