Phillips Edison & Company, Inc. — Q3 2022 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2022. Unaudited interim results. PECO is a REIT focused on grocery-anchored neighborhood and community shopping centers. At quarter-end, it owned 270 properties outright and a 14% interest in a joint venture owning 20 properties; its wholly owned portfolio was 97.1% leased.
Key financial results
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Total revenue | $145.7 million | $132.3 million | $430.3 million | $395.8 million |
| Net income attributable to stockholders | $11.0 million | $14.6 million | $34.6 million | $20.3 million |
| EPS, basic and diluted | $0.09 | $0.13 | $0.30 | $0.21 |
| Same-center NOI | $92.5 million | $88.7 million | $271.8 million | $258.6 million |
| Nareit FFO per diluted share | $0.55 | $0.46 | $1.62 | $1.44 |
| Core FFO per diluted share | $0.58 | $0.54 | $1.70 | $1.73 |
Q3 revenue rose 10.1%, led by rental income, while stockholder-attributable net income fell 24.6%. The comparison was affected by a $14.1 million property-disposal gain in Q3 2021 versus a small net loss in Q3 2022. Nine-month net income attributable to stockholders increased 70.4%; prior-year results included larger earn-out fair-value expense and property-disposal gains. Same-center NOI increased 4.3% for the quarter and 5.1% year to date. Comparable new-lease rent spreads and renewal spreads were positive; for the first nine months, they were 31.3% and 14.9%, respectively.
Cash flow, debt and liquidity
- Nine-month operating cash flow was $228.8 million, versus $198.3 million a year earlier. Investing activities used $276.3 million, principally reflecting $229.9 million of acquisitions and $74.3 million of capital spending; financing activities used $43.6 million.
- Cash, cash equivalents and restricted cash totaled $24.4 million at September 30, down from $115.5 million at year-end 2021. Unrestricted cash was $4.8 million.
- Gross debt was $1.890 billion; reported debt obligations, net, were $1.873 billion. The weighted-average interest rate was 3.3% and weighted-average term was 4.6 years. Net debt to annualized Adjusted EBITDAre was 5.4x, versus 5.6x at year-end 2021.
- The revolving facility was expanded from $500 million to $800 million; $733.4 million was available at quarter-end, net of borrowings and letters of credit. It matures in January 2026, with an option to extend to January 2027. The filing reports $255 million of variable-rate debt after hedging; $755 million of variable-rate debt was hedged to fixed rates for a weighted-average 1.8 years.
- Debt fair value was $1.737 billion versus recorded debt of $1.873 billion. Debt maturity, covenant and detailed refinancing schedules should be reviewed in the filing and related disclosures.
Business changes, outlook and risks
- Management said rent collections had returned to pre-pandemic levels in the second half of 2021 and remained strong in 2022; tenants on cash-basis accounting represented about 4% of portfolio ABR at September 30.
- Management expected to continue strategic acquisitions during the remainder of 2022. Current development and redevelopment projects represented an estimated $67.3 million investment, with targeted stabilization generally within 24 months and underwritten incremental unlevered yields of 10%–12%. These are targets, not guaranteed results. Management stated that current liquidity sources were sufficient for short- and long-term cash demands.
- The monthly distribution was increased 3.7% to $0.0933 per share for September and October 2022; the board subsequently authorized the same rate for November 2022 through January 2023. Distributions are not guaranteed, and the company has no minimum distribution requirement.
- Hurricane Ian damaged properties in the Southeast. PECO recorded $3.0 million of cumulative accelerated depreciation and a $1.1 million receivable for estimated insurance recoveries, net of a $1.9 million deductible; no recoveries had been received by quarter-end. Florida represented 11.7% and California 10.6% of wholly owned ABR.
- Management cited inflation, higher wages and material costs, potential tenant stress, rising interest rates, possible economic slowdown or recession, weather events, leasing and occupancy risks, and geographic concentration as risks. The filing reports no material change to previously disclosed risk factors, no material litigation identified, and effective disclosure controls.
- The ATM program issued 2.6 million shares for $89.2 million net proceeds in the first nine months, with $159.9 million remaining available. A new $250 million share repurchase program was authorized in August; no purchases had been made under it as of the filing. The 2022 distribution and share issuance activity are relevant when assessing per-share results and capital allocation.
Investor verification priorities
- Confirm the drivers and sustainability of same-center NOI growth, occupancy improvement and rent spreads, including higher recoverable operating costs.
- Assess how the 4% of ABR on cash-basis accounting and tenant credit quality evolve, and verify actual collections and insurance receipts for Hurricane Ian damage.
- Review floating-rate exposure, hedge maturities, debt maturities and facility covenant headroom against the reported 5.4x net-debt leverage.
- Compare acquisitions, redevelopment spending and ATM share issuance with resulting NOI, FFO per share, dilution and distribution coverage; Core FFO is a non-GAAP measure and is not cash available for distributions.
- Check subsequent filings for updated guidance, project costs and yields, distribution decisions, and any material change in economic or portfolio risks. The filing does not provide formal full-year earnings guidance.