Business context and reporting period
Phillips Edison & Company, Inc. (PECO) filed this Form 10-K for the fiscal year ended December 31, 2022; comparisons below are to 2021. PECO is a REIT focused on grocery-anchored neighborhood shopping centers, with third-party property and investment management operations. At year-end it owned 271 centers and held a 14% interest in a joint venture with 20 centers; its managed portfolio totaled approximately 33.3 million square feet across 31 states. The portfolio was 97.4% leased, and 71% of ABR came from tenants providing necessity-based goods and services.
Financial and operating performance
| Metric | FY 2022 | Comparison / context |
|---|---|---|
| Total revenue | $575.4 million | Up 8.0% from $532.8 million; rental income rose 7.9%. |
| Net income | $54.5 million | Up $37.3 million from $17.2 million; net income attributable to stockholders was $48.3 million, or $0.42 per share. |
| Same-Center NOI | $361.2 million | Up 4.5% from $345.7 million. |
| Core FFO per diluted share | $2.27 | Up $0.08 from $2.19; Core FFO was $295.3 million. |
| Cash from operating activities | $290.9 million | Up 10.6% from $262.9 million. |
| Cash used in investing activities | $331.2 million | Included $282.0 million of acquisitions and $104.5 million of capital expenditures, partly offset by $52.0 million of net property-sale proceeds. |
| Cash used in financing activities | $57.8 million | Year-end cash, cash equivalents and restricted cash were $17.3 million; unrestricted cash and equivalents were $5.5 million. |
| Debt and liquidity | $1.913 billion gross debt; $709.4 million revolving-credit availability | Weighted-average debt rate was 3.6%; net debt / Adjusted EBITDAre was 5.3x versus 5.6x in 2021. Total liquidity, including cash and restricted cash, was reported as $726.7 million. |
Material changes versus 2021
- Leased occupancy increased to 97.4% from 96.3%; same-center occupancy gains and acquisitions contributed to rental income growth. Same-Center NOI increased 4.5%.
- Comparable rent spreads strengthened: 32.2% on new leases versus 15.7% in 2021, and 14.6% on renewals versus 8.1%. Portfolio retention was 90.7%, compared with 87.8%.
- PECO acquired seven properties and four outparcels for $282.0 million and sold four properties and four outparcels for $52.0 million of net proceeds. It completed the sale of the final property in its NRP joint venture in May 2022.
- Net income benefited from higher same-center operating results, acquisitions net of dispositions, lower interest expense, and a substantially smaller earn-out fair-value charge than in 2021. Property-sale gains fell to $7.5 million from $30.4 million; real estate impairment charges declined to $0.3 million from $6.8 million.
- Net cash used in investing activities increased, principally reflecting materially lower disposition proceeds and higher capital spending. Gross debt was broadly stable, while the weighted-average rate rose to 3.6% from 3.3%.
Outlook, risks and unusual items
- Management said existing liquidity was sufficient for short- and long-term cash needs. It forecast 2023 capital expenditures of $105–$115 million, including $50–$60 million for development and redevelopment; projects are generally expected to stabilize within 24 months, with targeted underwritten incremental unlevered yields of 9%–11%. These are estimates, not guarantees.
- The $800 million unsecured revolving facility was expanded from $500 million in May 2022, matures in January 2026, and has an accordion feature up to $1 billion subject to conditions. Debt principal and interest payments were projected at $115.2 million in 2023; the maturity schedule shows approximately $503.1 million of principal due in 2024.
- Interest-rate exposure remains relevant: 14.6% of outstanding debt was variable rate at year-end, with $279 million not fixed through derivatives. Management estimated a one-percentage-point rate increase would add approximately $2.8 million of annual interest expense. The majority of variable-rate term debt was hedged, with $755 million of hedges averaging 1.6 years remaining.
- Key risks include anchor or smaller-tenant distress, vacancies and leasing costs, e-commerce competition, inflation and construction-cost pressures, higher borrowing/refinancing costs, property values and geographic exposure (notably Florida and California), severe weather, cybersecurity, and maintaining REIT qualification. Approximately 4% of portfolio ABR related to tenants accounted for on a cash basis.
- Tax protection agreements cover 28 wholly owned centers, four outparcels and land associated with one property, representing about 10.9% of ABR; the estimated potential make-whole amount is $149.0 million. PECO has not recorded a liability, citing its intent to retain or dispose of protected assets tax-efficiently. Its limited guarantee on a joint-venture mortgage is restricted to non-recourse carve-outs and environmental indemnity.
- Hurricane Ian damaged properties; PECO recorded $2.7 million of gross accelerated depreciation and estimated $1.0 million of insurance recoveries, with $1.7 million of deductibles and self-insurance. No recoveries had been received by year-end. In January 2022, PECO settled its earn-out liability by issuing approximately 1.6 million OP units valued at $54.2 million. The board raised the annualized distribution rate to $1.12 per share beginning September 2022 and authorized the same monthly rate for February–April 2023.
Important facts for investors to verify
- Review the full debt maturity schedule, particularly the 2024 principal obligations, refinancing plans, covenant headroom and variable-rate exposure.
- Assess whether occupancy, leasing spreads and retention can be sustained as 2023 lease expirations include 595 leases covering 2.3 million square feet across wholly owned and joint-venture properties.
- Compare planned capital spending and development yields with actual project costs, leasing progress and cash generation.
- Evaluate distribution coverage using operating cash flow and capital needs; Core FFO is a non-GAAP measure and is not equivalent to cash available for distributions.
- Monitor tenant collections, the $149.0 million estimated tax-protection exposure, insurance recovery for Hurricane Ian, and risks from geographic concentration and severe weather.