Phillips Edison & Company, Inc. — Q2 2021 Form 10-Q
Reporting period: Three and six months ended June 30, 2021. Financial statements are unaudited. PECO is a REIT focused on grocery-anchored neighborhood and community shopping centers; it wholly owned 272 properties at quarter-end and held interests in two joint ventures.
Financial performance and position
| Metric | Q2 2021 | Six months 2021 | Comparable 2020 |
|---|---|---|---|
| Total revenue | $133.1 million | $263.5 million | $119.0 million and $250.6 million |
| Net income (loss) | $6.4 million | $6.5 million | $(6.4) million and $4.8 million |
| Net income attributable to stockholders | $5.6 million; $0.06/share | $5.7 million; $0.06/share | $(5.6) million; $(0.06)/share and $4.2 million; $0.04/share |
| Same-center NOI | $87.7 million, up 10.5% | $173.1 million, up 4.6% | Year-over-year comparison |
| Core FFO | $64.3 million; $0.60/diluted share | $127.8 million; $1.19/diluted share | $51.7 million; $0.47/share and $111.9 million; $1.01/share |
Six-month operating cash flow was $129.9 million, versus $89.9 million in 2020. Investing activities provided $49.8 million, primarily reflecting $119.6 million of property-sale proceeds, partly offset by $40.5 million of acquisitions and $30.2 million of capital spending. Financing used $200.3 million, including $77.8 million of share repurchases, debt payments, and distributions. Cash, cash equivalents, and restricted cash totaled $111.4 million at June 30, including $89.2 million of restricted cash; the combined balance decreased $20.5 million during the half.
At June 30, total debt obligations were $2.24 billion gross ($2.23 billion net on the balance sheet), with a 2.9% weighted-average interest rate and 3.7-year weighted-average term. The company reported $489.3 million available under its $500 million revolver. Total assets were $4.51 billion and total equity was $2.00 billion.
Changes versus the prior period
- Q2 revenue increased 11.8%; six-month revenue increased 5.1%, mainly as rent collections recovered from pandemic-related weakness in 2020.
- Q2 net income improved from a loss, while six-month net income rose 36.0%. Six-month results included $17.6 million of net property-disposal gains and an $18.0 million noncash earn-out liability expense; the prior-year period included a $10.0 million earn-out fair-value gain.
- Interest expense fell $3.0 million in Q2 and $5.7 million for the first half, reflecting lower debt, lower rates, and the repayment of prior revolver borrowings.
- Same-center NOI growth benefited materially from improved collections and collectibility reserves. The company sold 13 properties and one outparcel in the first half, compared with four property sales in 2020.
- Leased occupancy was 94.7%, versus 95.6% a year earlier. Six-month comparable rent spreads were 15.3% on new leases and 8.0% on renewals; retention was 87.2%.
Outlook, capital actions, and risks
- No specific full-year earnings or revenue guidance is provided. Management said current liquidity, operating cash flows, revolver availability, and IPO proceeds were expected to meet short- and long-term cash needs.
- After quarter-end, PECO completed a $980 million credit refinancing, retired a $472.5 million term loan, and used IPO proceeds to repay a $375 million term loan. The company reported investment-grade ratings and expected approximately $7.2 million in annual interest savings from the debt actions and ratings. These are post-quarter events, not June 30 balances.
- The July IPO issued 17.0 million shares at $28 per share; an additional 2.55 million shares were sold for $71.4 million gross proceeds in August. Management said proceeds would reduce leverage and support acquisitions and general corporate purposes. The DRIP and share repurchase program were terminated in August.
- Management targeted 9%–11% incremental yields on development and redevelopment projects; projects in progress represented an estimated $36.3 million investment and a 9.5%–10.5% targeted yield range. Actual costs and yields may differ.
- COVID-19 remains a key uncertainty. Through July 20, 2021, collections were 98% for Q1 and Q2 2021 charges; approximately 95% of tenant spaces were paying rent in full. Payment plans outstanding were $5.3 million, and 8% of tenant spaces representing 7.4% of portfolio ABR were on cash-basis revenue accounting. Further closures, tenant failures, leasing costs, vacancies, and impairments could affect results.
- Other notable exposures include $39.9 million of derivative liabilities, a potential tax-protection make-whole amount estimated at $152.6 million (not recorded as a liability), and limited joint-venture debt guarantees. Florida and California represented 12.6% and 10.1% of wholly owned portfolio ABR, respectively.
Important facts for investors to verify
- Whether collection recovery and leasing momentum persist, and whether cash-basis tenant balances and payment plans are ultimately collected.
- How recurring property operations perform apart from property-sale gains, impairment charges, and earn-out fair-value changes; reconcile GAAP earnings with FFO and Core FFO.
- Post-IPO share count, net proceeds and actual debt repayment, leverage, interest savings, and liquidity after the refinancing.
- Distribution sustainability relative to operating cash flow and Core FFO; the filing reports a monthly distribution rate of $0.085 per share.
- Potential effects of tenant bankruptcies, occupancy changes, property impairments, tax-protection restrictions, and refinancing or interest-rate risks.