Phillips Edison & Company, Inc. — Q3 2023 Form 10-Q
Reporting period: Three and nine months ended September 30, 2023; unaudited. Phillips Edison is a REIT focused on grocery-anchored neighborhood and community shopping centers. At quarter-end it owned 275 properties outright and a 14% interest in a joint venture with 20 properties.
Financial performance and position
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Total revenue | $152.5 million | $145.7 million | $455.7 million | $430.3 million |
| Net income | $13.7 million | $12.2 million | $48.6 million | $38.8 million |
| Net income attributable to stockholders | $12.2 million | $11.0 million | $43.3 million | $34.6 million |
| EPS, basic and diluted | $0.10 | $0.09 | $0.37 | $0.30 |
| Operating cash flow | — | $219.0 million | $228.8 million |
- Q3 revenue rose 4.7% year over year and stockholder-attributable net income rose 10.9%. For the first nine months, revenue rose 5.9% and attributable net income rose 25.0%.
- Same-Center NOI increased 3.2% in Q3 and 4.5% year to date. Leased occupancy was 97.8%, versus 97.1% a year earlier; anchor occupancy was 99.3% and inline occupancy 94.9%.
- Q3 net interest expense increased to $21.5 million from $17.6 million, primarily due to higher rates. The weighted-average debt rate was 4.1%, up from 3.3% at September 2022.
- Core FFO per diluted share was $0.58 in Q3, unchanged year over year, and $1.76 for nine months, versus $1.70.
Cash, debt, and capital
- At September 30, total debt obligations were $1.889 billion, compared with $1.913 billion at year-end 2022. Net debt to annualized Adjusted EBITDAre was 4.9x, versus 5.3x at year-end.
- Cash and cash equivalents were $3.8 million and restricted cash was $4.5 million. Revolver availability was $705.6 million; management said available liquidity sources were sufficient for short- and long-term cash demands.
- Nine-month operating cash flow was $219.0 million; investing activities used $146.3 million and financing activities used $81.8 million. The period-end balance of cash, cash equivalents, and restricted cash was $8.2 million.
- Capital expenditures were $74.3 million on the cash flow statement. The company reported $39.5 million of estimated total investment in current projects and targeted 9%–12% underwritten incremental unlevered yields; actual yields may differ.
- The monthly distribution rate increased 4.5% to $0.0975 per share and OP unit beginning September 2023, or $1.17 annualized. The company issued 2.0 million shares through its ATM program in the first nine months for net proceeds of $70.1 million; approximately $89.0 million remained available.
Material changes, outlook, and risks
- Rental income growth reflected higher same-center rents and occupancy, recoveries, and acquisitions. Nine-month fees and management income declined 22.9%, chiefly because realized performance income from the NRP joint venture was $0.1 million versus $2.7 million in 2022.
- Q3 other expense included a $3.0 million impairment of a third-party investment after the investee could not pay rent; $0.2 million of tenant receivables was also reserved. Transaction and acquisition costs were lower than in the prior-year quarter.
- In July 2023, three unsecured term loans previously scheduled to mature in 2024 were amended. Their stated maturities are January 2026 (with two one-year extension options) and January 2027. The revolver matures in January 2026, with an extension option to January 2027.
- Management highlighted inflation, higher interest rates, potential economic slowdown, tenant credit and vacancies, refinancing costs, weather and climate events, and geographic concentration as risks. Florida and California represented 12.3% and 10.7% of wholly owned portfolio ABR, respectively; no single tenant represented 10% or more.
- No specific full-year earnings or revenue guidance is provided in the supplied filing text. Management expects current liquidity to meet cash needs and expects development and redevelopment projects generally to stabilize within 24 months. It cautions that interim results are not necessarily indicative of full-year performance.
- The company reported no material change in risk factors, no material legal proceeding, and no material change in market-risk disclosures. Management concluded disclosure controls were effective as of September 30, 2023.
Important facts for investors to verify
- Whether occupancy, rent spreads, and same-center NOI growth can offset higher property costs and interest expense.
- Debt maturities, borrowing costs, hedging coverage, and refinancing terms; $700 million of variable-rate debt was hedged to fixed rates for a weighted-average 1.8 years.
- Cash available after capital spending and distributions, given the low unrestricted cash balance and reliance on operating cash flow, revolver capacity, and equity issuance.
- Tenant credit quality and exposure to weather or regional downturns, particularly in Florida and California.
- The effect of ATM share issuance and the higher distribution rate on per-share results and future funding needs.
- The assumptions and potential variability behind the 9%–12% targeted project yields and stated project investment.