Phillips Edison & Company, Inc. — Q1 2020 Form 10-Q
Reporting period: Three months ended March 31, 2020. The company is a REIT focused on grocery-anchored shopping centers. It wholly owned 285 properties across 31 states; 97% of ABR was from grocery-anchored properties. Financial statements are unaudited and presented in thousands unless noted.
Financial performance and position
| Metric | Q1 2020 | Q1 2019 / prior date |
|---|---|---|
| Total revenue | $131.5 million | $132.8 million |
| Net income (loss) | $11.2 million | $(5.8) million |
| Net income (loss) attributable to stockholders | $9.8 million; $0.03 per share | $(5.2) million; $(0.02) per share |
| Same-center NOI | $86.9 million, up 2.6% | $84.7 million |
| Cash from operating activities | $35.6 million | $41.2 million |
| Cash, cash equivalents and restricted cash | $84.6 million | $95.1 million at Dec. 31, 2019 |
| Debt obligations, net | $2.356 billion | $2.354 billion at Dec. 31, 2019 |
| Weighted-average debt interest rate | 3.3% | 3.4% at Dec. 31, 2019 |
| Leased occupancy | 95.6% | Prior comparable occupancy not stated in the filing excerpt |
Operating expenses were $105.8 million, versus $128.2 million, including no real estate impairment charge compared with $13.7 million in Q1 2019. Interest expense declined to $22.8 million from $25.0 million. Other income included a $10.0 million gain from the change in fair value of the earn-out liability. Comprehensive loss attributable to stockholders was $28.0 million, principally reflecting a $43.4 million unrealized loss on interest-rate swaps.
Investing cash flow was a $2.4 million outflow, versus a $28.4 million inflow; financing cash flow was a $43.7 million outflow, versus $67.2 million. The company spent $16.0 million on capital expenditures, acquired two land parcels for $4.3 million, and received $17.4 million from property sales. Same-center NOI growth reflected higher rental and recovery income, partly offset by operating costs.
Material changes and COVID-19 response
- Q1 results were not significantly affected by COVID-19, but management warned that effects in Q2 and later periods could be significant. By May 11, approximately 30% of tenant spaces were temporarily closed, representing 21% of ABR and 16% of GLA. The company had received 2,120 rent-relief requests representing 29% of ABR; requests were still under evaluation.
- Rent and recoveries collected were approximately 77% of April billings and 74% of May billings as of May 11. These are interim collection figures, not final-period results.
- On March 27, the company temporarily suspended stockholder distributions and the dividend reinvestment plan after paying the March distribution on April 1. It also suspended the remaining limited share-repurchase program; standard repurchases had already been suspended in 2019.
- The company drew $34 million on its revolving facility in March and another $200 million in April for operating liquidity. Revolver capacity was $500 million; availability, net of letters of credit, was $254.7 million as of May 11. Debt covenants were met at March 31.
- Management reduced executive and director compensation, implemented expense and workforce reductions, and deferred capital projects where possible. Planned acquisition and disposition activity may be lower or delayed during 2020.
Outlook, risks and unusual items
Management said available liquidity, particularly operating cash flow and revolver capacity, was expected to meet short- and long-term cash demands, while acknowledging significant uncertainty. Risks include tenant nonpayment or bankruptcy, prolonged closures, lower leasing demand or rents, impairment of real estate and goodwill, reduced property-sale proceeds, refinancing and covenant pressure, and geographic exposure; Florida and California represented 12.3% and 10.5% of ABR, respectively. Management reported that approximately 51% of ABR came from businesses considered essential as of March 31. No specific earnings or revenue guidance was provided.
The Board reduced estimated value per share (EVPS) to $8.75 on May 6, from $11.10 previously. The independent valuation firm’s range was $8.45–$9.68 and was designated subject to “material valuation uncertainty” amid pandemic-related market volatility. The filing cautions that EVPS is not audited, is not GAAP fair value or a liquidation value, and may differ from realizable sale proceeds.
Q1 gross distributions to common stockholders and noncontrolling interests were $55.8 million, exceeding operating cash flow of $35.6 million by $20.2 million; the filing says the shortfall was funded by borrowings. FFO attributable to stockholders and convertible noncontrolling interests was $68.2 million and Core FFO was $60.2 million; both are non-GAAP measures and should be considered alongside GAAP results and cash flows.
Ordinary-course litigation and environmental matters were disclosed, but management did not expect them to have a material adverse effect. The company reported no significant rent-waiver obligations under force majeure or co-tenancy clauses as of March 31. It had $62.8 million of derivative liabilities; a default under debt or derivative agreements could trigger settlement obligations. It was in compliance with debt covenants at quarter-end.
Important facts for investors to verify
- Subsequent rent collections, tenant reopenings, rent-relief agreements, and any increase in uncollectible receivables.
- Whether the distribution suspension continues, and how liquidity and cash flow compare with debt service and capital needs.
- Revolver borrowings, remaining availability, covenant compliance, and the effect of borrowing costs on future results.
- Changes to occupancy, leasing spreads, property valuations, and impairment assumptions as pandemic conditions evolve.
- The basis and limitations of the $8.75 EVPS estimate, including its stated valuation uncertainty.