CINCINNATI–(BUSINESS WIRE)–Phillips Edison & Company, Inc. (“PECO” or the “Company”), an
internally-managed real estate investment trust (“REIT”) and one of the
nation’s largest owners and operators of grocery-anchored shopping
centers, today reported its results for the first quarter ended
March 31, 2019, and increased its estimated value per share to $11.10 as
of March 31, 2019.
First Quarter 2019 Highlights (vs. First Quarter 2018)
- Net loss totaled $5.8 million
-
Funds from operations (“FFO”) per diluted share increased 5.6% to
$0.19; FFO represented 111.3% of total distributions made during the
quarter -
Modified funds from operations (“MFFO”) per diluted share decreased
5.6% to $0.17; MFFO represented 100.3% of total distributions made
during the quarter -
Pro forma same-center net operating income (“NOI”)* increased 2.5% to
$87.3 million -
Comparable new lease spreads were 17.2% and comparable renewal lease
spreads were 12.3% -
Net debt to total enterprise value (“TEV”) decreased to 40.8% at
quarter-end, an improvement from 41.9% at March 31, 2018 -
Outstanding debt had a weighted-average interest rate of 3.5%, and
86.8% was fixed-rate debt -
Realized $36.6 million in gross proceeds from the sale of three
properties and one outparcel
* Pro forma same-center NOI includes properties acquired in PECO’s
merger with Phillips Edison Grocery Center REIT II, Inc. (“REIT II”) in
November 2018. Please see ‘Pro Forma Same-Center Results’ under
Portfolio Results for additional disclosure.
Estimated Value per Share Update
-
On May 8, 2019, the Company’s board of directors increased the
estimated value per share of its common stock to $11.10 as of
March 31, 2019, based on the range of $10.07 to $11.48 provided by
Duff & Phelps, an independent third-party valuation firm. As of March
31, 2018, the Company’s estimated value per share was $11.05.
Management Commentary
“The first quarter of 2019 demonstrated the continued strength of our
grocery-anchored portfolio and the benefits of our successful merger
with REIT II, illustrated by our pro forma same-center NOI growth of
2.5%,” commented Jeff Edison, Chairman and Chief Executive Officer of
PECO. “We saw an increased level of leasing activity during the quarter
with 270 leases executed, marking an 18% increase from last quarter, as
well as combined leasing spreads of 13.5%. Together, we believe these
metrics are indicators of the resilience in our portfolio’s
well-located, grocery-anchored assets.
“We continue to look for opportunities to recycle capital into higher
quality assets, invest in our existing properties through redevelopment,
and reduce our leverage. During the quarter we identified a number of
new redevelopment projects that we expect will drive incremental growth
through the remainder of 2019 and 2020. We also generated $36.6 million
of gross proceeds from the sale of three properties and one outparcel,
which we plan to use to acquire additional properties through 1031
exchanges and to pay down debt.
“The performance of our real estate during the past twelve months
coupled with our successful merger with REIT II led our board of
directors to increase our estimated value per share to $11.10, which
represents an 11.0% increase from our original offering price of $10.00
per share. The opportunity for additional NOI growth through continued
lease up, redevelopment and the growth potential of our investment
management business were driving factors in our board’s decision to
increase our estimated value per share.
“As we look toward our goal of executing a full-cycle liquidity event,
we are focused on strategies that we expect will provide both long-term
upside and future investor demand.”
First Quarter Ended March 31, 2019 Financial Results
Net Loss
For the first quarter of 2019, net loss totaled $5.8 million, compared
to a net loss of $1.8 million for the first quarter of 2018.
Contributing to the change were $13.7 million of impairment charges,
increased depreciation expense as a result of the additional properties
owned, and increased general and administrative expense. Partially
offsetting the increased expenses were $7.1 million of gains related to
the sale of three properties, $7.5 million of income from a reduction in
the liability for the earn-out provision of the 2017 contribution
agreement with Phillips Edison Limited Partnership (“PELP”), and
earnings from owning additional properties due to the merger with REIT
II in November 2018.
The Company adopted FASB Accounting Standards Codification Topic 842,
“Leases” (“ASC 842”) on January 1, 2019, and will provide additional
detail regarding the adoption in its Form 10-Q to be filed with the SEC.
As a result, the Company recognized a $1.1 million increase in net
expenses for the three months ended March 31, 2019.
FFO as Defined by the National Association of Real Estate Investment
Trusts (“Nareit”)
FFO attributable to stockholders and convertible noncontrolling
interests increased 51.2% to $61.0 million, or $0.19 per diluted share,
from $40.4 million, or $0.18 per diluted share, during the first quarter
of 2018. On a per diluted share basis, FFO increased 5.6% compared to
the first quarter of 2018.
The improvements in FFO and FFO per diluted share were driven by the
assets acquired from the merger with REIT II, year-over-year NOI growth,
and the reduction in the PELP earn-out liability.
MFFO
For the first three months of 2019, MFFO increased 30.3% to $55.0
million, or $0.17 per diluted share, compared to $42.2 million, or $0.18
per diluted share, during the same year-ago period.
The increase in MFFO was driven by additional properties owned from the
merger with REIT II. The decrease in MFFO per share was the result of a
number of factors including the recycling of assets, higher expenses
from the changes in lease accounting, and a decrease in leverage through
net disposition activity of wholly-owned properties over the past year,
as debt to TEV decreased to 40.8% from 41.9% at March 31, 2018.
Pro Forma Same-Center Results*
For the first quarter of 2019, pro forma same-center NOI increased 2.5%
to $87.3 million compared to $85.1 million during the first quarter of
2018. The improvement was driven by a $0.21 increase in average minimum
rent per square foot, an increase of 1.8%. Total pro forma same-center
revenue and operating expenses decreased year-over-year almost entirely
as a result of the change in presentation of real estate taxes directly
paid by tenants and bad debt expense from the implementation of new
lease accounting standards.
*For purposes of evaluating same-center NOI on a comparative basis,
and in light of the merger with REIT II, the Company is presenting pro
forma same-center NOI, which is same-center NOI on a pro forma basis as
if the merger had occurred on January 1, 2018. As such, contributing to
pro forma same-center NOI were 294 properties that were owned and
operational for the entire portion of both comparable reporting periods.
Three Months Ended March 31, 2019 Portfolio Overview
Portfolio Statistics
At quarter-end, PECO’s portfolio consisted of 300 properties, totaling
approximately 34.1 million square feet located in 32 states. This
compares to 237 properties, totaling approximately 26.4 million square
feet located in 32 states as of March 31, 2018.
Leased portfolio occupancy totaled 93.0%, which compared to 93.2% at
December 31, 2018 (the first comparable period after the merger with
REIT II). Anchor occupancy declined to 96.8% compared to 97.4% at
year-end with non-renewals of several junior anchors and the disposition
of certain properties with 100% anchor occupancy. In-line occupancy
increased to 85.7% from 84.9% at year-end due to high leasing velocity
during the current quarter.
Leasing Activity
During the first quarter 2019, 270 leases (new, renewal and options)
were executed totaling approximately 1.0 million square feet. This
compared to 192 leases executed totaling approximately 0.8 million
square feet during the first quarter of 2018.
Comparable rent spreads during the quarter, which compare the percentage
increase (or decrease) of new or renewal leases to the expiring lease of
a unit that was occupied within the past 12 months, were 17.2% for new
leases, 12.3% for renewal leases (excluding options), and 13.5% combined
(new and renewal leases).
Acquisition & Disposition Activity
During the quarter, the Company did not acquire any properties and sold
three properties and one outparcel, generating $36.6 million in gross
proceeds.
Sale proceeds realized are expected to be used to fund acquisitions with
potential growth, fund redevelopment opportunities in owned centers, and
delever the balance sheet.
Investment Management Business
During the first quarter of 2019, the Company generated $3.3 million of
fee income for asset management and property management services
rendered to third parties. Fee income declined from 2018 due to the
decrease in third-party assets under management resulting from the
acquisition of REIT II. Looking forward, the Company is committed to
expanding its investment management business, which has the potential to
generate income and cash flow without requiring additional capital or
increasing leverage.
At quarter-end, the Company had approximately $743 million of
third-party assets under management. Those assets included properties
owned by Phillips Edison Grocery Center REIT III, Inc. (PECO’s
co-sponsored non-traded REIT), Grocery Retail Partners I and Grocery
Retail Partners II (joint ventures with The Northwestern Mutual Life
Insurance Company), Necessity Retail Partners (a joint venture with TPG
Real Estate), and a private fund.
Balance Sheet Highlights at March 31, 2019
At quarter-end, the Company had $439.7 million of borrowing capacity
available on its $500 million revolving credit facility.
Net debt to TEV was 40.8% at March 31, 2019, compared to 41.1% at
December 31, 2018.
The Company’s outstanding debt had a weighted-average interest rate of
3.5%, a weighted-average maturity of 4.8 years, and 86.8% of its total
debt was fixed-rate debt. This compared to a weighted-average interest
rate of 3.5%, a weighted-average maturity of 4.9 years, and 90.1%
fixed-rate debt at December 31, 2018.
Distributions
For the quarter ended March 31, 2019, gross distributions of $54.8
million were paid to common stockholders and operating partnership (“OP
unit”) holders, including $17.7 million reinvested through the
distribution reinvestment plan (“DRIP”), for net cash distributions of
$37.1 million.
During the quarter, FFO totaled 111.3% of total distributions, up from
105.4% in Q1 2018.
The Company made its April 2019 distribution and will make its May 2019
distribution in the amount of $0.05583344 per share to the stockholders
of record at the close of business on April 15, 2019, and May 15, 2019,
respectively.
Subsequent to quarter-end, the Company’s board of directors authorized
distributions for June 2019, July 2019, and August 2019 in the amount of
$0.05583344 per share to the stockholders of record at the close of
business on June 17, 2019, July 15, 2019, and August 15, 2019,
respectively. OP unit holders will receive distributions at the same
rate, subject to required tax withholding.
Share Repurchase Program (“SRP”)
During the first quarter of 2019, approximately 605,000 shares of common
stock, totaling $6.7 million, were repurchased under the SRP.
The Company fulfilled all repurchases sought upon a stockholder’s death,
qualifying disability, or determination of incompetence in accordance
with the terms of the SRP. Cash available for standard repurchases on
any particular date under the SRP, of which the Company may use all or
any portion, is generally limited to the proceeds from the DRIP during
the preceding four quarters, less amounts already used for repurchases
during the same time period. As such, the Company did not process
standard repurchases during the quarter.
All standard repurchase requests must be on file and in good order by
the close of business on July 24, 2019, to be included for the next
standard repurchase, which is expected to occur on July 31, 2019. At
that time, the demand for standard redemptions is expected to exceed
funding the Company makes available for repurchases and, as a result,
the Company expects to make redemptions on a pro-rata basis.
Estimated Value Per Share
Effective May 8, 2019, the Company’s board of directors increased the
estimated value per share of its common stock to $11.10 as of March 31,
2019.
Duff & Phelps was engaged to provide a calculation of the range in
estimated value per share of the Company’s common stock as of March 31,
2019. Duff & Phelps prepared a valuation report based substantially on
its estimate of the “as is” market values of the company’s portfolio,
adjusted to reflect balance sheet assets and liabilities and the
estimated value of in-place contracts of the third-party asset
management business provided by the Company’s management as of March 31,
2019, before calculating a range of estimated per share values based on
the number of outstanding shares of common stock as of quarter end.
These calculations produced an estimated value per share in the range of
$10.07 to $11.48.
For a full description of the assumptions and methodologies used to
determine the estimated value per share, see the Form 10-Q for the
quarter ended March 31, 2019, to be filed with the SEC, which will be
accessible on the SEC’s website at www.sec.gov.
Stockholder Update Call
Chairman and Chief Executive Officer Jeff Edison, Chief Financial
Officer Devin Murphy, and Executive Vice President Mark Addy will host a
live presentation addressing the Company’s results and estimated value
per share later today, May 9, 2019, at 2:00 p.m. Eastern Time. Following
management’s prepared remarks, there will be a question and answer
session.
Date: Thursday, May 9, 2019
Time: 2:00 p.m. Eastern Time
Webcast link: https://services.choruscall.com/links/peco190509.html
U.S. listen-only: (888) 346-2646
International listen-only: (412) 317-5249
Submit Questions: [email protected]
Replay: A webcast replay will be available approximately one hour
after the conclusion of the presentation at http://investors.phillipsedison.com/event-calendar.
Investors are able to submit questions in advance of the presentation by
emailing them to [email protected].
Additionally, questions may be submitted via the webcast interface
during the live presentation.
Interested parties will be able to access the presentation online or by
telephone. If dialing in, please call the conference telephone number
five minutes prior to the start time and an operator will register your
name and organization. Participants should ask to join the Phillips
Edison & Company call.
For more information on the Company’s quarterly results, please refer to
the Company’s Form 10-Q for the quarter ended March 31, 2019, which will
be filed with the SEC and available on the SEC’s website at www.sec.gov.
|
PHILLIPS EDISON & COMPANY, INC. CONSOLIDATED BALANCE SHEETS AS OF MARCH 31, 2019 AND DECEMBER 31, 2018 (Unaudited) (In thousands, except per share amounts) |
|||||||||||
| March 31, 2019 |
December 31, |
||||||||||
|
ASSETS |
|||||||||||
| Investment in real estate: | |||||||||||
| Land and improvements | $ | 1,592,232 | $ | 1,598,063 | |||||||
| Building and improvements | 3,234,798 | 3,250,420 | |||||||||
| In-place lease assets | 461,805 | 464,721 | |||||||||
| Above-market lease assets | 66,747 | 67,140 | |||||||||
| Total investment in real estate assets | 5,355,582 | 5,380,344 | |||||||||
| Accumulated depreciation and amortization | (619,874 | ) | (565,507 | ) | |||||||
| Net investment in real estate assets | 4,735,708 | 4,814,837 | |||||||||
| Investment in unconsolidated joint ventures | 43,998 | 45,651 | |||||||||
| Total investment in real estate assets, net | 4,779,706 | 4,860,488 | |||||||||
| Cash and cash equivalents | 12,684 | 16,791 | |||||||||
| Restricted cash | 74,074 | 67,513 | |||||||||
| Accounts receivable – affiliates | 5,958 | 5,125 | |||||||||
| Corporate intangible assets, net | 13,116 | 14,054 | |||||||||
| Goodwill | 29,066 | 29,066 | |||||||||
| Other assets, net | 136,680 | 153,076 | |||||||||
| Real estate investment and other assets held for sale | 5,764 | 17,364 | |||||||||
| Total assets | $ | 5,057,048 | $ | 5,163,477 | |||||||
| LIABILITIES AND EQUITY | |||||||||||
| Liabilities: | |||||||||||
| Debt obligations, net | $ | 2,415,762 | $ | 2,438,826 | |||||||
| Below-market lease liabilities, net | 127,988 | 131,559 | |||||||||
| Earn-out liability | 32,000 | 39,500 | |||||||||
| Deferred income | 12,096 | 14,025 | |||||||||
| Accounts payable and other liabilities | 119,742 | 126,074 | |||||||||
| Liabilities of real estate investment held for sale | 275 | 596 | |||||||||
| Total liabilities | 2,707,863 | 2,750,580 | |||||||||
| Commitments and contingencies | — | — | |||||||||
| Equity: | |||||||||||
|
Preferred stock, $0.01 par value per share, 10,000 shares authorized, zero shares issued |
|||||||||||
| and outstanding at March 31, 2019 and December 31, 2018, respectively | — | — | |||||||||
|
Common stock, $0.01 par value per share, 1,000,000 shares authorized, 281,549 and 279,803 |
|||||||||||
|
shares issued and outstanding at March 31, 2019 and December 31, 2018, respectively |
2,815 | 2,798 | |||||||||
| Additional paid-in capital | 2,693,946 | 2,674,871 | |||||||||
| Accumulated other comprehensive (loss) income (“AOCI”) | (61 | ) | 12,362 | ||||||||
| Accumulated deficit | (745,740 | ) | (692,045 | ) | |||||||
| Total stockholders’ equity | 1,950,960 | 1,997,986 | |||||||||
| Noncontrolling interests | 398,225 | 414,911 | |||||||||
| Total equity | 2,349,185 | 2,412,897 | |||||||||
| Total liabilities and equity | $ | 5,057,048 | $ | 5,163,477 | |||||||
|
PHILLIPS EDISON & COMPANY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE (LOSS) FOR THE THREE MONTHS ENDED MARCH 31, 2019 AND 2018 (Unaudited) (In thousands, except per share amounts) |
|||||||||||
| Three Months Ended March 31, | |||||||||||
| 2019 | 2018 | ||||||||||
| Revenues: | |||||||||||
| Rental income | $ | 128,860 | $ | 93,886 | |||||||
| Fees and management income | 3,261 | 8,712 | |||||||||
| Other property income | 648 | 601 | |||||||||
| Total revenues | 132,769 | 103,199 | |||||||||
| Expenses: | |||||||||||
| Property operating | 22,866 | 18,115 | |||||||||
| Real estate taxes | 17,348 | 13,147 | |||||||||
| General and administrative | 13,285 | 10,461 | |||||||||
| Depreciation and amortization | 60,989 | 46,427 | |||||||||
| Impairment of real estate assets | 13,717 | — | |||||||||
| Total expenses | 128,205 | 88,150 | |||||||||
| Other: | |||||||||||
| Interest expense, net | (25,009 | ) | (16,779 | ) | |||||||
| Gain on disposal of property, net | 7,121 | — | |||||||||
| Other income (expense), net | 7,536 | (107 | ) | ||||||||
| Net loss | (5,788 | ) | (1,837 | ) | |||||||
| Net loss attributable to noncontrolling interests | 593 | 237 | |||||||||
| Net loss attributable to stockholders | $ | (5,195 | ) | $ | (1,600 | ) | |||||
| Earnings per common share: | |||||||||||
| Net loss per share attributable to stockholders – basic and diluted | $ | (0.02 | ) | $ | (0.01 | ) | |||||
| Comprehensive (loss) income: | |||||||||||
| Net loss | $ | (5,788 | ) | $ | (1,837 | ) | |||||
| Other comprehensive (loss) income: | |||||||||||
| Change in unrealized value on interest rate swaps | (14,361 | ) | 13,488 | ||||||||
| Comprehensive (loss) income | (20,149 | ) | 11,651 | ||||||||
| Net loss attributable to noncontrolling interests | 593 | 237 | |||||||||
| Comprehensive loss (income) attributable to noncontrolling interests | 1,938 | (2,603 | ) | ||||||||
| Comprehensive (loss) income attributable to stockholders | $ | (17,618 | ) | $ | 9,285 | ||||||
Non-GAAP Disclosures
Pro Forma Same-Center Net Operating Income
Same-center NOI represents the NOI for the properties that were owned
and operational for the entire portion of both comparable reporting
periods. For purposes of evaluating Same-center NOI on a comparative
basis, we are presenting pro forma same-center NOI, which is same-center
NOI on a pro forma basis as if the Merger had occurred on January 1,
2018. This perspective allows us to evaluate same-center NOI growth over
a comparable period. As of March 31, 2019, we had 294 same-center
properties, including 85 same-center properties acquired in the Merger.
Pro forma same-center NOI is not necessarily indicative of what actual
same-center NOI growth would have been if the Merger had occurred on
January 1, 2018, nor does it purport to represent same-center NOI growth
for future periods.
Pro forma same-center NOI highlights operating trends such as occupancy
rates, rental rates, and operating costs on properties that were
operational for both comparable periods. Other REITs may use different
methodologies for calculating same-center NOI, and accordingly, our pro
forma same-center NOI may not be comparable to other REITs.
Pro forma same-center NOI should not be viewed as an alternative measure
of our financial performance since it does not reflect the operations of
our entire portfolio, nor does it reflect the impact of general and
administrative expenses, acquisition expenses, depreciation and
amortization, interest expense, other income, or the level of capital
expenditures and leasing costs necessary to maintain the operating
performance of our properties that could materially impact our results
from operations.
Funds from Operations and Modified Funds from Operations
FFO is a non-GAAP performance financial measure that is widely
recognized as a measure of REIT operating performance. The National
Association of Real Estate Investment Trusts (“NAREIT”) defines FFO as
net income (loss) attributable to common stockholders computed in
accordance with GAAP, excluding gains (or losses) from sales of property
and gains (or losses) from change in control, plus depreciation and
amortization, and after adjustments for impairment losses on real estate
and impairments of in-substance real estate investments in investees
that are driven by measurable decreases in the fair value of the
depreciable real estate held by the unconsolidated partnerships and
joint ventures. Adjustments for unconsolidated partnerships and joint
ventures are calculated to reflect FFO on the same basis. We calculate
FFO Attributable to Stockholders and Convertible Noncontrolling
Interests in a manner consistent with the NAREIT definition, with an
additional adjustment made for noncontrolling interests that are not
convertible into common stock.
MFFO is an additional performance financial measure used by us as FFO
includes certain non-comparable items that affect our performance over
time. We believe that MFFO is helpful in assisting management and
investors with the assessment of the sustainability of operating
performance in future periods. We believe it is more reflective of our
core operating performance and provides an additional measure to compare
our performance across reporting periods on a consistent basis by
excluding items that may cause short-term fluctuations in net income
(loss) but have no impact on cash flows.
FFO, FFO Attributable to Stockholders and Convertible Noncontrolling
Interests, and MFFO should not be considered alternatives to net income
(loss) or income (loss) from continuing operations under GAAP, as an
indication of our liquidity, nor as an indication of funds available to
cover our cash needs, including our ability to fund distributions. MFFO
may not be a useful measure of the impact of long-term operating
performance on value if we do not continue to operate our business plan
in the manner currently contemplated.
Accordingly, FFO, FFO Attributable to Stockholders and Convertible
Noncontrolling Interests, and MFFO should be reviewed in connection with
other GAAP measurements, and should not be viewed as more prominent
measures of performance than net income (loss) or cash flows from
operations prepared in accordance with GAAP. Our FFO, FFO Attributable
to Stockholders and Convertible Noncontrolling Interests, and MFFO, as
presented, may not be comparable to amounts calculated by other REITs.
The table below compares pro forma same-center NOI (in thousands):
| Three Months Ended | Favorable | |||||||||||||||||||||
| March 31, | (Unfavorable) | |||||||||||||||||||||
| 2019 | 2018(1) | $ Change | % Change | |||||||||||||||||||
| Revenues: | ||||||||||||||||||||||
| Rental income(2) | $ | 92,270 | $ | 91,451 | $ | 819 | ||||||||||||||||
| Tenant recovery income | 29,980 | 31,737 | (1,757 | ) | ||||||||||||||||||
| Other property income | 620 | 689 | (69 | ) | ||||||||||||||||||
| Total revenues | 122,870 | 123,877 | (1,007 | ) | (0.8)% | |||||||||||||||||
| Operating expenses: | ||||||||||||||||||||||
| Property operating expenses | 18,840 | 20,376 | 1,536 | |||||||||||||||||||
| Real estate taxes | 16,780 | 18,355 | 1,575 | |||||||||||||||||||
| Total operating expenses | 35,620 | 38,731 | 3,111 | 8.0% | ||||||||||||||||||
| Total Pro Forma Same-Center NOI | $ | 87,250 | $ | 85,146 | $ | 2,104 | 2.5% | |||||||||||||||
Contacts
Investors:
Phillips Edison & Company, Inc.
Michael
Koehler, Director of Investor Relations
(513) 338-2743
[email protected]
