Why LXP Industrial Trust stock crashed on Friday

What happened

Real Estate Investment Trust (REIT) LXP Industrial Properties (NYSE:LXP) ended the week on a serious negative note. Shares of the company plunged more than 14% on Friday following a sudden reversal in business strategy that disappointed investors.

So what

LXP announced in an official press release that it was no longer evaluating “strategic alternatives”. This comes exactly two months after the REITs announced that it was launching such a review. Among other options, the company had to consider a merger with another company and a sale.

Image source: Getty Images.

When the move was originally announced, LXP quoted CEO T. Wilson Eglin as saying:

Over the past five years, we have successfully transformed LXP into a leading, primarily single-tenant, industrial REIT with a much stronger and more valuable portfolio. With this transformation substantially complete, we believe the time is right to launch a comprehensive process to determine the best path to generate shareholder value.

But apparently the best path is to do nothing at all.

In its Friday press release announcing the cancellation, the company said that during its assessment, “several potential counterparties” were generally positive about LXP’s current portfolio and its transformation efforts. However, on the downside, they expressed concern over “significant changes in macroeconomic, geopolitical and financial conditions” since the start of the review.

Given this, LXP chooses to remain an independent company for the time being.

Now what

Such “strategic reviews” raise hopes among shareholders that a company will be sold at a premium to an eager investor. It is therefore not shocking that investors reacted so negatively to the abandonment of the same by LXP.

While not one of the most popular REITs on the scene, LXP operates in a hot segment right now (warehouse/distribution). It also shows decent, if unspectacular, revenue growth and pays a dividend with a not bad yield for a 3.1% REIT. So investors shouldn’t necessarily bail out the stock just because the company gives up its search for a suitor.

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Eric Volkman has no position in the stocks mentioned. The Motley Fool has no position in the stocks mentioned. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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