Phillips Edison & Company, Inc. — Q2 2022 Form 10-Q
Business context and reporting period. This unaudited quarterly report covers the three and six months ended June 30, 2022. PECO is a REIT focused on grocery-anchored neighborhood and community shopping centers. At quarter-end, it owned 269 properties outright and held a 14% interest in a joint venture owning 20 properties; its portfolio spanned 31 states.
Key financial and operating metrics
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Total revenue | $142.5 million | $133.1 million | $284.7 million | $263.5 million |
| Net income | $15.3 million | $6.4 million | $26.7 million | $6.5 million |
| Net income attributable to stockholders | $13.5 million | $5.6 million | $23.6 million | $5.7 million |
| GAAP diluted earnings per share | $0.12 | $0.06 | $0.21 | $0.06 |
| Core FFO per diluted share | $0.56 | $0.60 | $1.12 | $1.19 |
| Same-center NOI | $89.7 million | $86.0 million | $179.3 million | $169.9 million |
- Q2 revenue increased 7.1% year over year; six-month revenue increased 8.1%. Same-center NOI grew 4.3% in Q2 and 5.5% for the first half.
- Quarter-end leased occupancy for wholly owned properties was 96.8%, versus 94.7% a year earlier. ABR was $421.0 million, versus $384.9 million.
- Net cash from operating activities was $142.5 million for the first half, versus $129.9 million. Investing activities used $185.9 million, mainly reflecting $170.2 million of acquisitions and $42.9 million of capital spending. Financing activities used $28.4 million.
- Cash and cash equivalents were $24.7 million and restricted cash was $19.0 million at June 30. Total assets were $4.69 billion and total equity was $2.59 billion.
- Debt obligations, net, were $1.88 billion; gross debt was $1.90 billion. The weighted-average interest rate was 3.2%, with a 4.9-year weighted-average term. Net debt to annualized adjusted EBITDAre was 5.5x.
- The amended revolving credit facility has $800 million capacity and $740.7 million available at quarter-end, net of borrowings and letters of credit. It matures in January 2026, with an option to extend to January 2027.
Material changes versus the prior comparable period
- GAAP net income attributable to stockholders rose to $13.5 million in Q2 from $5.6 million. For the first half, it rose to $23.6 million from $5.7 million. The filing attributes much of the year-over-year improvement to lower earn-out fair-value expense and, for the first half, lower property-sale gains in 2022 were a partial offset.
- Core FFO per diluted share declined to $0.56 from $0.60 in Q2 and to $1.12 from $1.19 for the first half. The filing’s Core FFO adjustments include $2.5 million of Q2 realized performance income from the NRP joint venture.
- Same-center occupancy improved, and rent growth contributed to higher rental income. Q2 comparable rent spreads were 39.0% for new leases and 14.4% for renewals; the filing defines comparable spreads using a specific subset of leases.
- First-half acquisition spending increased to $170.2 million from $40.5 million, while net property-sale proceeds fell to $27.1 million from $119.6 million. Capital spending rose to $42.9 million from $30.2 million.
- The company raised its revolving-credit commitment from $500 million to $800 million and transitioned the facility and two term-loan tranches from LIBOR to SOFR. Variable-rate debt was $248 million; $755 million of variable-rate debt was hedged to fixed rates for an average 2.1 years.
Outlook, commentary, risks and unusual items
- Outlook: Management said current liquidity sources were sufficient for short- and long-term cash demands and expected to continue strategic acquisitions during the remainder of 2022. In-process development and redevelopment projects represented an estimated $59.5 million investment; targeted stabilization is generally within 24 months, with underwritten incremental unlevered yields of 10%–12%. These are targets, not guaranteed outcomes. The filing provides no full-year earnings or FFO guidance.
- Operations and risks: Management said rent collections had stabilized after the pandemic recovery. Tenants on cash-basis revenue accounting represented about 5.0% of portfolio ABR. The filing warns that inflation and supply-chain constraints may pressure tenants and increase operating and construction costs; higher interest rates could slow the economy or contribute to recession. It also cites tenant credit, vacancy and reletting, debt refinancing and borrowing costs, weather and climate exposure, and geographic concentration risks. Florida and California represented 11.9% and 10.7% of wholly owned ABR, respectively.
- Unusual items: Q2 fees and management income included $2.5 million of NRP performance income after the joint venture met specified targets; PECO sold its final NRP property in May. In January, PECO settled its earn-out liability by issuing about 1.6 million OP units valued at $54.2 million. The liability’s fair-value change contributed $1.8 million of first-half expense, versus $18.0 million in the prior-year period.
- Capital actions: The ATM program raised $63.0 million net from 1.9 million shares in Q2; a further $26.2 million net was raised from 0.8 million shares in July. The August 2022 distribution was authorized at $0.09 per share. The Board also authorized a share repurchase program of up to $250 million on August 3, 2022; it does not require repurchases.
- Management reported effective disclosure controls as of June 30, 2022, and no material change in internal control during the quarter. It reported no material changes to the risk factors in its 2021 Form 10-K. Ordinary-course litigation and environmental matters were not expected by management to have a material adverse effect based on information then available.
Investor verification priorities
- Verify the durability of same-center NOI and leasing gains, including whether rent spreads translate into collected rent and sustained occupancy.
- Assess the quality and repeatability of earnings: separate recurring property operations from NRP performance income, property-sale gains, and earn-out fair-value changes.
- Review the $170.2 million acquisition program, $42.9 million first-half capital spending, and project yield assumptions against realized costs and stabilized NOI.
- Evaluate liquidity and refinancing exposure alongside variable-rate debt, hedging maturities, SOFR-linked borrowing costs, and the 5.5x net-debt-to-adjusted-EBITDAre ratio.
- Monitor tenant collections and credit, particularly the 5.0% of ABR associated with tenants accounted for on a cash basis, as well as inflation and geographic concentration exposures.
- Confirm subsequent share issuance, distributions, and any actual repurchases; the ATM and repurchase authorizations are not commitments to issue or buy a specified number of shares.