LXP Industrial Trust - Earnings Call - Q2 2025

Executive Summary

• Solid Q2: Revenue rose year over year; Adjusted Company FFO held at $0.16/share; same-store NOI grew 4.7%. The quarter was highlighted by leasing a 1.1M sq ft development in Greenville/Spartanburg and tightening FY25 Adjusted Company FFO guidance to $0.62–$0.64/share.
• Revenue vs estimates: Slight beat on revenue ($87.7M actual vs $87.25M consensus*) and EBITDA modestly below consensus*; management emphasized FFO as the key metric for REITs, with Q2 Adjusted Company FFO at $0.16/share in line with prior quarters.
• Guidance: FY25 Adjusted Company FFO narrowed to $0.62–$0.64 (from $0.61–$0.65), reflecting the 1.1M sq ft lease; same-store NOI growth guidance maintained at 3%–4%; G&A outlook unchanged at $39–$41M.
• Strategic actions: $39.6M asset sale at a 4.3% cash cap rate; repurchased $28.1M of Trust Preferreds at a 5% discount; net debt/Adj. EBITDA improved to 5.8x; fixed/hedged debt at 99% for 2025–2026, 3.9% W.A. rate.
• Potential stock catalysts: Continued lease-up of remaining big-box developments (CFO embeds ~$2M of 2H GAAP rent in guidance) and progress toward 5.0x net debt/EBITDA target could drive multiple and NAV narrative.

What Went Well and What Went Wrong

• What Went Well

  • Leased 1.1M sq ft first-generation development at $5.50 PSF with 3.25% annual bumps; expected ~$3.7M 2025 contribution; stabilized cash yield ~8%.
  • Same-store NOI growth +4.7% YoY; stabilized portfolio 94.1% leased (98.4% excluding first-gen vacancy).
  • Balance sheet progress: repurchased $28.1M Trust Preferreds at 5% discount; fixed/hedged 99% of 2025–2026 debt; net debt/Adj. EBITDA 5.8x; CEO: “reducing net debt to EBITDA… to five times… will help the valuation the most”.

• What Went Wrong

  • Two move-outs created new vacancy at quarter-end (355k sq ft Savannah; 248k sq ft Houston), though leasing activity is underway; holdover rent collected in Houston.
  • Longer tenant decision timelines and macro uncertainty (tariffs/supply chain) slowing conversions despite higher inquiry activity; more concessions via free rent/TI rather than face rate cuts.
  • EBITDA slightly below consensus* and continued need to lease remaining big-box inventory to unlock full $15M annual run-rate potential (CFO included only ~$2M in 2H guide).

Transcript

Operator (participant)

Good morning. My name is Audra and I will be your conference operator today. At this time I would like to welcome everyone to the LXP Industrial Trust second quarter earnings eall and webcast. Today's conference is being recorded. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press the star key followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one again. At this time I would like to turn the conference over to Heather Gentry, Investor Relations. Please go ahead.

Heather Gentry (EVP of Investor Relations)

Thank you. Operator, welcome to LXP Industrial Trust second quarter 2025 earnings conference call and webcast. The earnings release was distributed this morning, and both the release and quarterly supplemental are available on our website at www.lxp.com 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, and Nathan Brunner, CFO, will provide a recent business update and commentary on second quarter results. Brendan Mullinix, CIO, and James Dudley, Executive Vice President and Director of Asset Management, will be available for the Q&A portion of this call.

I will now turn the call over to Will.

Will Eglin (Chairman, CEO and President)

Thanks, Heather. Good morning, everyone. We produced strong second quarter results highlighted by the lease-up of our 1.1 million sq ft development facility in Greenville-Spartanburg, same store NOI growth of 4.7%, and continued progress reducing our leverage with net debt to adjusted EBITDA of 5.8x at quarter end. Our performance reflects the resilience of our core business amid a continuing soft industrial real estate environment and uncertain macroeconomic backdrop. Overall, U.S. net absorption was approximately 30 million sq ft. In the second quarter, of this absorption, 20 million sq ft was in our 12 target markets, indicating our markets held up relatively well compared to the broader market, with net absorption in five of our markets exceeding 2 million sq ft. Large corporate users and 3PLs were the primary drivers of overall absorption, favoring higher quality properties.

This trend bodes well for our portfolio, which is 92% comprised of Class A facilities with an average age of just over nine years. New deliveries are at a five-year low and are expected to continue declining. The construction pipeline in our 12 target markets is approximately 90 million sq ft, down nearly 75% from the 2022 peak of approximately 330 million sq ft. On the leasing front, year to date we've leased approximately 2.4 million sq ft with second-generation base and cash rent spreads of approximately 41% and 46%, respectively. We reached a significant milestone this quarter with the lease of our 1.1 million sq ft development facility in the Greenville-Spartanburg market to a U.S. subsidiary of a global logistics company. This was a great outcome that resulted in immediate occupancy and low TI with annual cash base rent of approximately $6 million.

Since 2019, we've developed 15 facilities totaling 9.1 million sq ft, of which 74% has been leased at an average estimated stabilized cash yield of 7.1%. We have had users touring our other Big Box Facilities in Indianapolis and Central Florida, with the Indianapolis market much more active when compared to a year ago. Many of our 2025 expirations were addressed previously, and the remaining lease roll this year represents just 1.2% of our ABR with rents that are approximately 30% to 35% below market. We're forecasting lower tenant retention for 2025 with year-end same store occupancy of approximately 97% to 99%, and our current mark to market on leases expiring through 2030 remains attractive with in-place rents 17% below market based on brokers' estimates.

On the investment front during the quarter, we sold a property in Chillicothe, Ohio to a user buyer for approximately $40 million at a cash capitalization rate of 4.3%. This sale, along with another sale in the first quarter, bolstered our cash position. We accretively redeployed a portion of the Chillicothe sale's proceeds to fund the repurchase of approximately $28 million of our floating rate trust preferred securities at a 5% discount to par based on the discounted purchase price. The current yield on the repurchased securities was approximately 6.6%. The transaction market for individual properties and small portfolios has been resilient. Given the stability we are seeing in the investment sales market, we are evaluating some modest capital recycling opportunities outside of our target markets for reinvestment that we would expect to be largely earnings neutral.

We continue to concentrate our investment strategy in 12 target markets in the Sun Belt and select lower Midwest states, which account for approximately 85% of our gross assets. With a more focused geographic approach, we have the ability to scale and continue deepening our expertise and relationships within these markets, which provides both investment and operational advantages. Our target markets are experiencing positive demographic trends and are continuing to see investment in the onshoring of advanced manufacturing, reflecting business-friendly government policies and high-quality logistics infrastructure, among other attributes. In fact, in a recent CNBC report ranking the top states for business, 10 of our 12 target markets are in the top 10 states and all 12 are in the top 20, further validating our investment thesis that our target markets stand to outperform. With that, Nathan will now discuss our financials, leasing, and balance sheet in more detail.

Nathan Brunner (EVP, CFO and Treasurer)

Thanks, Will. Adjusted company FFO in the second quarter was $0.16 per diluted common share or approximately $47 million. This morning we tightened our 2025 adjusted company FFO guidance to a new range of $0.62 to $0.64. The low end was increased with the lease-up of our 1.1 million sq ft facility in Greenville-Spartanburg, which is expected to contribute $3.7 million of base rent and operating expense reimbursement in 2025. The high end of the range has been revised given where we are in the year as timelines continue to be elongated regarding tenant decision-making processes. We are now including approximately $2 million of GAAP rent contribution from prospective leasing activity across the remaining development facilities for the second half of the year. During the quarter we produced same store NOI growth of 4.7% with our same store portfolio 98% leased at quarter end.

Our same store NOI growth guidance for full year 2025 remains unchanged at 3% to 4%. This guidance assumes year end occupancy for the same store pool of approximately 97% to 99%. We reported second quarter G&A of approximately $9.6 million and our expectations for 2025 G&A are unchanged at $39 million to $41 million. On the leasing front, we increased our portfolio occupancy in the second quarter to 94.1%, up from 93.3% as of first quarter. As Will mentioned, we leased our 1.1 million sq ft development facility in the Greenville-Spartanburg market during the quarter for an initial lease term of two years with two five-year renewal options. The initial base rent is $5.50 per sq ft with 3.25% annual rent bumps. The tenant took occupancy of the facility in late May and cash rent commences August 1st.

The estimated stabilized cash yield on our cost basis is approximately 8%. We also renewed our approximately 101,000 sq ft lease in the Atlanta market and an outdoor storage facility in Minneapolis, both of which were 2025 expirations. We increased both the base and cash-based rents at the Atlanta facility approximately 38% and extended the lease for five years with 3.5% rental bumps. The Minneapolis outdoor storage facility was encumbered by a five-year fixed rate renewal option. We successfully negotiated a 10-year renewal with the tenant at the current in-place rent to enhance the marketability of this property as it is a near-term disposition candidate. We had two tenant move outs at quarter end, which included our 248,000 sq ft facility in Houston and our 355,000 sq ft facility in Savannah.

We collected two months of holdover rent at the Houston facility during the quarter and have prospective activity at both buildings. We currently have approximately 600,000 squ ft of redevelopment projects underway. This includes a 350,000 sq ft redevelopment in Orlando, which commenced in the quarter, and a 250,000 sq ft redevelopment in Richmond. Both facilities are anticipated to complete in the first quarter of 2026 and produce yields on cost in the low teens. Moving to balance sheet, we continue to execute on our plans to reduce leverage and increase the proportion of hedged and fixed rate debt. As a reminder, in September 2024, we capitalized on a favorable market window and executed interest rate swaps to lock in fixed rates on $250 million of floating rate bank term loan and $83 million of our floating rate trust preferred securities, leaving approximately $47 million of trust preferred securities unhedged.

In anticipation of potential opportunities to repurchase the securities during the quarter, we repurchased approximately $28 million of trust preferred securities at a 5% discount to par. This transaction, along with the $50 million term loan repayment in January, increased our hedged and fixed rate debt to 99% of debt outstanding in 2025 and 2026, with a weighted average interest rate of 3.9%. Net debt to adjusted EBITDA was 5.8x at quarter end, down 0.4 turns over the last 12 months. Reducing leverage remains a key focus for the company as we pursue our business plan and grow EBITDA. At quarter end, we had approximately $71 million of cash on balance sheet. With that, I'll turn the call back over to Will.

Will Eglin (Chairman, CEO and President)

Thanks, Nathan. In closing, we're pleased with our second quarter results. We believe our portfolio of modern logistics facilities with strong tenant credit and a geographic footprint aligned with advanced manufacturing investment is highly desirable in the current market environment. We will continue to focus on creating value for our shareholders by increasing occupancy, marking rents to market, raising rents through annual escalators, and concentrating on our 12 market investment strategy. With that, I'll turn the call back.

Over to the operator.

Operator (participant)

Thank you. We will now begin the question and answer session. If you have dialed in and would like to ask a question, please press Star one on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press Star one again. We'll take our first question from Anthony Talone at JPMorgan.

Anthony Talone (Analyst)

Great, thanks. Good morning. Just first question on disposition. Can you talk about what drove the low cap rate on the sale?

Will Eglin (Chairman, CEO and President)

Yeah, I mean the situation there really involved finding a user that wanted to own that building. The execution was much better than if we sold that into the investor marketplace.

Anthony Talone (Analyst)

Okay. On capital markets, can you mention still potentially selectively selling some things? Can you give us a sense as to maybe order of magnitude that you have in the market to sell in the near term? Also, just some broader comments on depth of market for your assets, maybe where cap rates are, what types of buyers and what types of product do folks want right now?

Will Eglin (Chairman, CEO and President)

Yeah, I think we would test the market with about $100 million of dispositions going forward. I would say that after Liberation Day we were a little bit concerned that there would be volatility in the investment sales market. It's really held up very well. We'll be back in the business of creating some liquidity from our asset bases outside of our 12 target markets. I think we're optimistic that we'll do very well.

Anthony Talone (Analyst)

Okay, and then just last one, can you talk about just what traffic has been like for leasing up some of the larger empty boxes.

James Dudley (EVP and Director of Asset Management)

Sure.

Tommy, this is James. How are you this morning? I'll start with Indy. Indy has really picked up since the fourth quarter of last year. There's been a lot of big box activity. There were two really good deals that got signed, not in our particular submarket but in one of the major submarkets in Indy. Subsequent to quarter end, there are a couple $800,000 deals that have gotten done. There's a $1.2 million deal that's in the process of getting done. We've had some competition get taken off and we've had a number of RFPs, a number of tours, and we're feeling confident that we're going to land one. It really hasn't been a building issue, it's been a size issue. We've just been kind of in the middle of the sizes that have been leased. We're optimistic on Indy.

Central Florida generally has just been a little bit slower on the big box. We have had some renewed interest recently. We've got some interest from a full building user that just came across and there are some deals that are in the works in the smaller, kind of $500,000 size. Things seem to be picking up there. Promising activity for sure in Indy and then hopeful activity in Central Florida.

Anthony Talone (Analyst)

Okay, great.

Thank you.

Will Eglin (Chairman, CEO and President)

Thanks Tony.

Operator (participant)

We'll move next to Todd Thomas at KeyBanc.

Todd Thomas (CFA, Managing Director and Equity Research Analyst)

Hi, thanks. First question. I wanted to ask about the comments you made around the year end lease rate target for the same store pool in the 97% to 99% range. The portfolio is 98% leased today. You have four remaining expirations that represent a little over 100 basis points of occupancy. Can you provide an update on some of those expirations? The 380,000 square footers in Indianapolis that's scheduled to expire tomorrow. Curious if you have an update on the remaining three as well.

James Dudley (EVP and Director of Asset Management)

Sure.

The 380 you just mentioned is a no move out. We expect that we're going to get a little bit of holdover rent from them going back to the Indy market. There's been a significant amount of activity on that asset, so we're hopeful that we're going to be able to backfill that space relatively quickly. We'll see, but like I said, good activity there. We've got the two small 80,000 square footers. Those are both also move outs, one in Savannah and one across the street or across the highway in Indianapolis. We have those out in the market. The last one is still unknown. It's 160,000 sq ft in Phoenix. If the tenant stays, great. There's the potential they may. It's across the street from one of their manufacturing plants.

If we get the building back, that's a pretty tight market with a really strong mark to market of around 50%. It's got 40 foot clear and right on the 303.

Todd Thomas (CFA, Managing Director and Equity Research Analyst)

Okay.

For 2026, any sense how, I mean, you commented that tenant retention was going to be a little bit lower in 2025. Any sense what tenant retention may look like in 2026 at this point? Are there any known move outs that you know are worth discussing right now?

James Dudley (EVP and Director of Asset Management)

Most of our lease expirations are kind of back here, back into the year. In 2026, we have started some dialogue with probably 25% of the tenants. I would say for the most part it's really positive on renewal. There are a couple of situations where tenants are contemplating their supply chain and whether or not the market that they're in is what fits for them. We have one situation with a small 3PL in Memphis that isn't sure the size still fits. I think we're going to have strong retention, but we may have a few tenants here or there that move out. Overall, 19% mark to market next year and we think we're going to have a successful overall outcome.

Will Eglin (Chairman, CEO and President)

Okay. I wanted to shift to the land bank. Sounds like the build-to-suit market is stronger than it's been or getting stronger, I should say. Curious if you're seeing that and if there are opportunities within the land bank that could materialize.

Brendan Mullinix (EVP and Chief Investment Officer)

Hi, this is Brendan. Yeah, we've continued to respond to build-to-suit interest at both our Phoenix site and our site. I don't have anything further to report on that today, but I will comment that we've seen more potential interest of late at our Columbus site where we have about 69 acres remaining. The immediate market area around our site there has been tightened significantly. We recently had a $1.2 million sq ft building there in the market lease, so there's good activity there. Columbus is looking strong. The decision making on build-to-suit is a little bit like what we've seen with other and commented on other large space decisions. It's been kind of protracted. In some cases in Phoenix, we've had cases where we've competed against existing spec product where there may be motivated landlords who can be competitive on pricing.

In some other cases, we've had situations where RFP processes that we've responded to where the tenants defer decision and then schedule constraints may favor existing buildings versus taking completion risk on new build.

But.

There's certainly build-to-suit interest out there. We're optimistic that that will land something in that space.

Todd Thomas (CFA, Managing Director and Equity Research Analyst)

All right, thank you.

Will Eglin (Chairman, CEO and President)

Thanks, Todd.

Operator (participant)

We'll move next to Vince Tibone at Green Street.

Vince Tibone (Managing Director and Head of US Industrial and Mall Research)

Hi, good morning. As you think about capital recycling, could either the cold storage or office JV properties be potential candidates for sale, or should we consider those properties or businesses you'll stay in for at least the foreseeable future?

Will Eglin (Chairman, CEO and President)

I think for modeling purposes you should think of those portfolios as being pretty static. I think there is one opportunity in the office JV that may turn into a sale candidate, but for the most part I would think of them as being static portfolios.

Vince Tibone (Managing Director and Head of US Industrial and Mall Research)

That makes sense. Just continuing on the point of capital recycling, is there a point where you would potentially shift from selling to purchase properties to consider buying back shares here in some form of leverage neutral fashion? Just given where stock trades on a discount NAV or many valuation metric, it seems like that could be an interesting avenue over further acquisitions. Curious how you're thinking about that opportunity and trade offs.

Will Eglin (Chairman, CEO and President)

Yeah, I think so. I think the number one priority for us that's going to improve our valuation the most is generating more EBITDA from our vacancy and reducing net debt to EBITDA. If we can drive that down to five times with visibility on that, it's varying timelines to get there. I think that's the thing that will help the valuation the most in the context of share repurchase. If we could do some of those, that would be fine. I do think it's an important longer term priority to recycle the capital out of our non target markets and really focus on the 12 that are our core strategy. There will be some tax implications where we want to complete some 1031 exchanges in order to protect our basis. Share repurchase could be part of the mix.

I really want to stay committed to reaching that five times net debt to EBITDA leverage point.

Vince Tibone (Managing Director and Head of US Industrial and Mall Research)

Got it.

Thank you.

Maybe just last one for me. I just wanted to clarify a comment from Nathan earlier about, I believe it was $2 million included in the 2025 guide from future leasing activity. Is that solely that $2 million, you know, directly tied to either the two vacant million square footers or is that any vacant property right now?

It would be kind of $2.

Million from any existing vacancy that you're able to lease through year end. Just kind of curious if you could elaborate on that, just get a sense of how you're thinking about the new leasing opportunity through year end.

Nathan Brunner (EVP, CFO and Treasurer)

Yeah, Vince, the $2 million really relates to the total opportunity set of the two big boxes. There is also another development that's two buildings, one's half leased in Central Florida. It's really those three projects that that opportunity relates to. When you look at those three projects and you think about the annual run rate potential of those projects, it's something like $15 million.

Of cash-based.

Rent and OpEx reimbursement. I think that's important context. It's a $2 million contribution out of a pipeline that has $15 million of annual run rate when it's leased. Just to be crystal clear, it does not include any other second-generation vacancies.

Vince Tibone (Managing Director and Head of US Industrial and Mall Research)

Got it.

Thank you.

Will Eglin (Chairman, CEO and President)

Thanks, Vince.

Operator (participant)

Next we'll take Mitch Germain at Citizens Capital Markets.

Mitch Germain (Managing Director)

Thank you. I am curious about the move outs in the back part of this year.

I think you referenced three with.

One that you weren't sure about. I'm curious how many of those three were always kind of known move outs, or was any of that a result of some of the recent macro and legislation issues?

James Dudley (EVP and Director of Asset Management)

I can run through them real quick. The 380 in Indy moved to a competitive building that had tax abatement. They were able to get tax abatement when we didn't have it, so it was an operating expense issue. The other two moved into new space where they actually consolidated. The 80,000 sq ft in Indianapolis moved one of their operations from Buffalo and moved into a 350,000 sq ft building in Plainfield, and the smaller one in Savannah moved from 88,000 sq ft into 800. It was a size requirement and then a particular situation with tax abatement.

Mitch Germain (Managing Director)

Gotcha.

That's super helpful. You previously had suggested, you know, sales were off the table, and it does seem like activities picked up more than you anticipated. I'm curious if that same phenomenon that's happening in the western sales market is also happening within the leasing markets, where you anticipated things would be a little bit slower and you're seeing a little bit more resiliency.

James Dudley (EVP and Director of Asset Management)

I would say activity has definitely picked up. It's really about getting it from activity to across the finish line and getting signed. There seem to be a whole lot of starts where you're having conversations with tenants or even getting through the RFP process. You feel like a tenant's ready to sign and then you get a pause. I think there's a lot more tire kicking. I think there's still concern over macro uncertainty, and I think if tenants can put decisions off, they are. I think you've also seen a lot of 3PL activity. It's really driven the market. I think that's also indicative of the fact that tenants are concerned about uncertainty and maybe looking to 3PLs both to cut costs and to give them flexibility.

Mitch Germain (Managing Director)

Great, that's helpful.

Any last question for me? Any update on Phoenix and the opportunity there?

Will Eglin (Chairman, CEO and President)

No, not beyond what I commented on earlier in the conversation. Continuing to see interest there and be optimistic about the potential there.

Mitch Germain (Managing Director)

Great, thank you.

Will Eglin (Chairman, CEO and President)

Thanks, Mitch.

Operator (participant)

We will move next to Jim Kammert at Evercore ISI.

Jim Kammert (Managing Director)

Good morning.

Thank you.

I guess, Nathan, you mentioned some pretty attractive returns on redevelopment activity. Could you refresh my memory? What kind of dollar volume of redevelopments could LXP be looking at in the next 12 to 18 months?

Nathan Brunner (EVP, CFO and Treasurer)

Yeah, sure, I can. The two redevelopments that were announced, just to summarize those. One, the larger project is a redevelopment project in Orlando that follows on an investment that we made last year where we acquired the fee interest in the land beneath the 205,000 sq ft building that we own there that was also encumbered by a below market building lease. Lease of that was at $2.48 a square foot. In addition, we bought an expansion of that building that our tenant had owned. Today we own a 351,000 sq ft building very well located in the southwest Orange County submarket of Orlando, which is outperforming the rest of the market. The budget there is $9.4 million on the redevelopment. The second project that we've announced is in Richmond.

It's a 252,000 sq ft building that was originally developed as part of a four building campus for a single user there. The tenant exercised an early termination right that they had for this particular building. The benefit there to us is that that was encumbered by a below market lease as well. We remove that encumbrance there. The estimated cost of redevelopment is $3.7 million, which is principally just to separate the building systems and do some additional upgrades, expanding parking and things like that, for the building to operate more independently from the other buildings. As Nathan shared in his prepared remarks, both projects are anticipated to complete in the first quarter of next year and produce yields on cost in the low teens.

Jim Kammert (Managing Director)

Right.

No, that's extremely helpful. I'm sorry, I probably posed a question. I'm thinking beyond those you disclosed, what would you say? Just in the portfolio, can you identify material amounts of redevelopment opportunities? Is a better way to phrase it. I'm sorry, beyond what you've already identified, is that a source of opportunity for LXP Industrial Trust?

Nathan Brunner (EVP, CFO and Treasurer)

I think that there's additional opportunity in the portfolio. We're not quantifying it today.

Jim Kammert (Managing Director)

Fair enough. Finally, you're very helpful. The comments in Indianapolis still, regarding lease-up, it's more a question of just a large box. There haven't been too many users.

For that.

In the Florida large lease-up, are you seeing the competing landlords panic in any regard, you know, sort of dropping rents, or is it not something that we should be concerned about, that, you know, sort of race to the bottom here? She sees a lack of demand and no one's sort of blinking yet on rents.

James Dudley (EVP and Director of Asset Management)

You know, there are some landlords that are willing to do that, but typically when they do that, and I can think of two in Indy right now, it's because they have something that's functionally wrong with their building or they're in a location that's not desirable. If you're down the middle with your asset, I think rents are going to continue to hold. I think where you'll see the softness in the market will be in free rent and tenant improvements rising.

Jim Kammert (Managing Director)

Good. Thank you very much.

Thanks, Jim.

Operator (participant)

That concludes our Q and A session. I will now turn the conference back over to Will Eglin for closing remarks.

Will Eglin (Chairman, CEO and President)

We appreciate everyone joining our call this morning, and we look forward to updating you on our progress over the balance of the year. Thanks again for joining us today.

Operator (participant)

This concludes today's conference call. Thank you for your participation. You may now disconnect.