Phillips Edison & Company, Inc. (Nasdaq: PECO) — FY2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023. This is an annual filing; it does not provide standalone fourth-quarter results in the supplied text. PECO is a REIT focused on grocery-anchored neighborhood shopping centers and also earns fees from managing third-party funds. At year-end, it owned 281 centers and held a 14% interest in a joint venture owning 20 centers; the combined managed portfolio comprised about 34.4 million square feet across 31 states.
Financial and operating performance
| Metric | FY2023 / year-end | Prior comparable period |
|---|---|---|
| Total revenue | $610.1 million | $575.4 million; up 6.0% |
| Rental income | $597.5 million | $560.5 million; up 6.6% |
| Net income | $63.8 million; $56.8 million attributable to stockholders; diluted EPS $0.48 | $54.5 million; $48.3 million attributable to stockholders; diluted EPS $0.42 |
| Same-center NOI | $396.6 million | $380.5 million; up 4.2% |
| Core FFO per diluted share | $2.34 | $2.27 |
| Cash from operations | $291.0 million | $290.9 million |
| Cash used in investing | $353.4 million | $331.2 million |
| Cash from / (used in) financing | $53.9 million | $(57.8) million |
| Debt and liquidity | $1.987 billion gross debt; $615.4 million total liquidity, including $606.6 million revolver availability | $1.913 billion gross debt; $709.4 million revolver availability |
| Leverage and interest | Net debt / Adjusted EBITDAre 5.1x; net debt / enterprise value 28.8%; weighted-average debt rate 4.2% | 5.3x; 31.6%; 3.6% |
| Leased occupancy | 97.4% overall; 94.7% inline; 98.9% anchor | 97.4% overall; 93.8% inline; 99.3% anchor |
Year-end cash, cash equivalents, and restricted cash were $8.9 million. Gross capital spending was $95.3 million. PECO declared monthly distributions of $0.0933 per share through August and raised the rate to $0.0975 from September, equivalent to $1.17 annualized. Core FFO, NOI, and Adjusted EBITDAre are non-GAAP measures and should be considered alongside GAAP results and cash flows.
Material changes versus FY2022
- Net income rose 16.9%, principally reflecting stronger same-center operations and acquisition activity, although the gain on property disposals declined to $1.1 million from $7.5 million.
- Same-center NOI increased 4.2%, supported by higher average rents, improved occupancy, and tenant recoveries. Inline occupancy improved 0.9 percentage point, while anchor occupancy declined 0.4 point.
- Net interest expense increased 18.3% to $84.2 million; the year-end weighted-average interest rate rose to 4.2% from 3.6%, mainly due to higher rates.
- Fees and management income decreased 16.4% to $9.6 million, including lower realized performance income from the NRP joint venture.
- Operating cash flow was essentially flat. Investing cash use increased as property-sale proceeds fell substantially; PECO acquired 11 properties and three outparcels for a $270.3 million net acquisition cost and sold one property and two outparcels.
- PECO issued 4.2 million shares through its ATM program for $147.6 million net proceeds, versus 2.6 million shares and $89.2 million in 2022.
Outlook, risks, and notable items
- Outlook: Management expects 2024 capital expenditures of $100–$110 million, including $40–$50 million for development and redevelopment. It is targeting annual acquisitions of $200–$300 million and expects development and redevelopment projects to average 9%–12% underwritten incremental unlevered yields. These are targets, not guaranteed outcomes. No explicit earnings or FFO guidance is provided in the supplied text.
- Leasing: For 2024, 635 wholly owned leases covering 2.8 million square feet are scheduled to expire, with $15.07 ABR per square foot. Comparable new-lease and renewal spreads in 2023 were 25.2% and 16.2%, respectively; future results may differ.
- Debt and interest rates: PECO amended $475 million of term loans scheduled to mature in 2024, extending maturities into 2026–2027 (with extension options on one tranche). About 22.4% of debt was variable-rate at year-end. Management estimates a one-percentage-point rate increase would add approximately $4.5 million of annual interest expense on the then-outstanding variable-rate debt. Debt covenants were met at year-end; management expects continued compliance over the next 12 months.
- Other exposures: Principal risks include tenant and anchor financial health, vacancies and leasing costs, interest rates and refinancing, inflation and operating costs, property values, acquisitions and redevelopment execution, severe weather, e-commerce, cybersecurity, and maintaining REIT qualification. Florida and California represented 12.2% and 10.9% of portfolio ABR, respectively.
- Unusual items and contingencies: PECO recorded a $3.0 million impairment of a third-party investment after the investee could not pay rent; it recorded no real estate impairment in 2023. A tax protection agreement covers specified properties representing approximately 10.5% of ABR; the estimated potential make-whole amount on protected built-in gains was $122.7 million, with no liability recorded. PECO is also a limited non-recourse carveout and environmental guarantor for a joint-venture mortgage with a $174.0 million year-end balance.
- Controls and audit: Management and the independent auditor concluded internal control over financial reporting was effective. The auditor issued unqualified opinions on the financial statements and internal controls; purchase-price allocation for acquired properties was identified as a critical audit matter.
Important facts for investors to verify
- Review debt maturities, revolver availability, covenant headroom, and the variable-rate exposure after the January 2024 swap disclosed in the filing.
- Track occupancy, 2024 lease renewals and expirations, achieved rent spreads, and tenant credit/collectibility trends.
- Assess whether acquisitions and the $100–$110 million capital program meet expected returns and can be funded without excessive debt or share dilution.
- Evaluate the sustainability of distributions against operating cash flow, REIT taxable income, capital needs, and any future Board decisions.
- Monitor the tax protection agreements, joint-venture obligations, and potential impairment or environmental exposures.