Phillips Edison & Company(US:PECO)2024-04-26 20:09PART I. FINANCIAL INFORMATION Item 1. Financial Statements The company's financial statements for the quarter ended March 31, 2024, show a stable financial position with slight growth in total assets and liabilities, increased net income, and consistent cash flow from operations, while continuing acquisition and debt management strategies Consolidated Balance Sheets As of March 31, 2024, total assets increased slightly to $4.89 billion from $4.87 billion at year-end 2023, primarily due to growth in net investment in real estate, while total liabilities rose to $2.25 billion from $2.21 billion, driven by an increase in debt obligations, consequently leading to a minor decrease in total equity to $2.64 billion Consolidated Balance Sheet Highlights (in thousands) | Account | March 31, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Total Assets | $4,886,509 | $4,865,666 | | Net investment in real estate assets | $4,626,216 | $4,616,091 | | Total Liabilities | $2,249,111 | $2,212,315 | | Debt obligations, net | $2,015,554 | $1,969,272 | | Total Equity | $2,637,398 | $2,653,351 | Consolidated Statements of Operations and Comprehensive Income For the three months ended March 31, 2024, total revenues increased by 6.8% year-over-year to $161.3 million, driven by higher rental income, while net income attributable to stockholders grew to $17.7 million from $16.6 million in the prior-year period, with both basic and diluted earnings per share remaining unchanged at $0.14 Q1 2024 vs Q1 2023 Performance (in thousands, except per share amounts) | Metric | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Total Revenues | $161,302 | $151,064 | | Rental Income | $158,068 | $147,728 | | Total Operating Expenses | $117,407 | $113,149 | | Net Income | $19,626 | $18,636 | | Net Income Attributable to Stockholders | $17,670 | $16,619 | | EPS (basic and diluted) | $0.14 | $0.14 | Consolidated Statements of Equity During the first quarter of 2024, total stockholders' equity decreased from $2.31 billion to $2.30 billion, primarily due to common distributions offsetting net income, alongside the conversion of noncontrolling interests into common stock - Key changes in equity for Q1 2024 include the addition of $17.7 million in net income, offset by $35.9 million in common distributions declared ($0.2925 per share)10 - The company converted $4.7 million of noncontrolling interests into 192,000 shares of common stock10 Consolidated Statements of Cash Flows For the first quarter of 2024, net cash from operating activities remained stable at $63.1 million, while cash used in investing activities decreased to $66.6 million from $91.4 million year-over-year, mainly due to lower real estate acquisition spending, and net cash from financing activities significantly decreased to $4.7 million from $23.3 million in Q1 2023 Cash Flow Summary (in thousands) | Activity | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Net cash provided by operating activities | $63,138 | $62,763 | | Net cash used in investing activities | ($66,637) | ($91,418) | | Net cash provided by financing activities | $4,718 | $23,270 | | Net Change in Cash | $1,219 | ($5,385) | - The decrease in cash used for investing activities was primarily due to lower spending on real estate acquisitions ($56.2 million in Q1 2024 vs. $69.4 million in Q1 2023)12 Notes to the Unaudited Condensed Consolidated Financial Statements The notes detail the company's structure as a REIT focused on grocery-anchored centers, its leasing activities with over $2.2 billion in future contractual payments, and Q1 2024 real estate acquisitions totaling $56.2 million, along with its $2.02 billion debt portfolio, $700 million in interest rate swaps, equity activities including a new $250 million ATM program, and related-party transactions Note 1: Organization Phillips Edison & Company, Inc. (PECO) is a Real Estate Investment Trust (REIT) that primarily invests in omni-channel grocery-anchored neighborhood and community shopping centers across the United States, wholly-owning 284 properties and holding a 14% interest in a joint venture (GRP I) that owned an additional 20 properties as of March 31, 2024 - The company's core business is investing in grocery-anchored shopping centers with necessity-based retailers18 - As of March 31, 2024, the company wholly-owned 284 properties and had a 14% interest in GRP I, which owned 20 properties19 Note 3: Leases All of the company's leases are classified as operating leases, generating $158.1 million in total rental income for Q1 2024, with future fixed contractual lease payments under non-cancelable leases totaling approximately $2.27 billion, and the portfolio exhibiting geographic concentrations in Florida and California Future Minimum Rents (in thousands) | Year | Amount | | :--- | :--- | | Remaining 2024 | $350,899 | | 2025 | $434,754 | | 2026 | $368,248 | | 2027 | $300,545 | | 2028 | $229,612 | | Thereafter | $581,927 | | Total | $2,265,985 | - The portfolio is geographically concentrated, with Florida and California accounting for 12.4% and 11.0% of ABR, respectively, as of March 31, 202427 Note 4: Real Estate Activity In the first three months of 2024, the company acquired two properties and one outparcel for a total price of $56.2 million, a decrease from four properties acquired for $69.4 million in the same period of 2023, with no properties sold in either period Real Estate Acquisition Activity (dollars in thousands) | Metric | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Number of properties acquired | 2 | 4 | | Number of outparcels acquired | 1 | 0 | | Total price of acquisitions | $56,186 | $69,431 | Note 6: Debt Obligations As of March 31, 2024, total debt obligations stood at $2.02 billion, with a weighted-average interest rate of 4.3%, up slightly from 4.2% at year-end 2023, and the debt portfolio is primarily unsecured (75.9%) and largely fixed-rate (75.8%) when including the effects of interest rate swaps Debt Summary (dollars in thousands) | Metric | March 31, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Total Debt Obligations, Net | $2,015,554 | $1,969,272 | | Weighted-average interest rate | 4.3% | 4.2% | - As of March 31, 2024, 75.8% of the company's debt was fixed-rate (including the effect of derivatives) and 75.9% was unsecured33 Note 7: Derivatives and Hedging Activities The company uses interest rate swaps to manage interest rate risk on its variable-rate debt, holding five interest rate swaps designated as cash flow hedges with a total notional amount of $700 million as of March 31, 2024, including a new $150 million swap executed in January 2024 effective September 2024 - The company utilizes interest rate swaps to hedge variable cash flows associated with variable-rate debt3435 Interest Rate Swap Summary | Metric | March 31, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Count | 5 | 4 | | Notional Amount | $700,000,000 | $700,000,000 | | Weighted-average term (years) | 1.3 | 1.5 | - In January 2024, the company entered into a new interest rate swap with a notional amount of $150 million, effective September 202437 Note 9: Equity In Q1 2024, the company issued approximately 46,000 shares under its At-the-Market (ATM) program for net proceeds of $1.7 million, established a new $250 million ATM program in February 2024, declared monthly distributions of $0.0975 per share, and maintains a $250 million share repurchase program with no repurchases to date - During Q1 2024, the company issued ~46,000 shares under its ATM program for $1.7 million in net proceeds45 - A new sales agreement for an ATM program of up to $250 million was established in February 2024, replacing the previous one. No shares were issued under the new program in Q1 202446 - A share repurchase program of up to $250 million is in place, but no repurchases have been made to date49 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management reports a strong operational quarter with a wholly-owned portfolio occupancy of 97.2% and positive leasing spreads, 3.7% Same-Center NOI growth, and increased Core FFO per share to $0.60, maintaining a stable leverage ratio of 5.1x Net Debt to Adjusted EBITDAre, strong liquidity, and continued growth through $56.2 million in property acquisitions Portfolio and Leasing Statistics As of March 31, 2024, the company's wholly-owned portfolio comprised 284 properties totaling 32.4 million square feet, with 97.2% leased occupancy and an Annualized Base Rent (ABR) of $479.2 million, heavily focused on necessity-based retail, and with the top 20 tenants accounting for 32.3% of total ABR Wholly-Owned Portfolio Highlights | Metric | March 31, 2024 | March 31, 2023 | | :--- | :--- | :--- | | Number of properties | 284 | 275 | | Total square feet (thousands) | 32,350 | 31,456 | | ABR (thousands) | $479,159 | $445,611 | | Leased occupancy % (Total) | 97.2% | 97.5% | | Leased occupancy % (Anchor) | 98.4% | 99.3% | | Leased occupancy % (Inline) | 94.8% | 94.3% | - The top 20 tenants represent 32.3% of ABR, with Kroger (5.9%) and Publix (5.5%) being the largest89 Results of Operations For Q1 2024, net income increased by 5.3% to $19.6 million, with total revenues growing 6.8% to $161.3 million, primarily driven by a $10.3 million (7.0%) increase in rental income from acquisitions and same-center performance, while operating expenses rose by 3.8% and interest expense increased by 19.9% due to higher rates and debt levels - Rental income increased by $10.3 million, with $6.5 million from acquisition activity and $3.8 million from the same-center portfolio9395 - Interest expense increased by $3.9 million (19.9%) primarily due to higher interest rates and increased debt outstanding96 Leasing Activity In Q1 2024, the company executed 84 new leases and 161 renewals/options, achieving strong comparable rent spreads of 29.1% for new leases and 16.9% for renewals, with an 87.9% portfolio retention rate, and significantly lower renewal costs per square foot compared to new leases Q1 2024 Leasing Activity Highlights | Leasing Metric | New Leases | Renewals & Options | | :--- | :--- | :--- | | Number of Leases | 84 | 161 | | Square Footage (thousands) | 255 | 1,052 | | Comparable Rent Spread | 29.1% | 16.9% | | Portfolio Retention Rate | N/A | 87.9% | Non-GAAP Measures The company reported strong growth in its key non-GAAP performance metrics for Q1 2024, with Same-Center Net Operating Income (NOI) increasing by 3.7% year-over-year, Core Funds From Operations (Core FFO) per diluted share rising to $0.60, and Annualized Net Debt to Adjusted EBITDAre remaining stable at 5.1x - Same-Center NOI for Q1 2024 increased 3.7% to $106.7 million, compared to $102.9 million in Q1 2023103 FFO per Diluted Share | Metric | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Nareit FFO per share | $0.59 | $0.58 | | Core FFO per share | $0.60 | $0.59 | - Adjusted EBITDAre for Q1 2024 was $105.4 million, an increase from $98.0 million in Q1 2023110 Liquidity and Capital Resources The company maintains a strong liquidity position, primarily supported by operating cash flow, its $800 million revolving credit facility (with $560.6 million available), and proceeds from its ATM program, with total debt at $2.03 billion and stable leverage ratios, while capital expenditures for the quarter totaled $12.9 million - Primary sources of liquidity are operating cash flows, the unsecured revolving credit facility, and the ATM offering program111113 Financial Leverage Ratios | Ratio | March 31, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Net debt to Adjusted EBITDAre - annualized | 5.1x | 5.1x | | Net debt to total enterprise value | 29.6% | 28.8% | - During Q1 2024, the company had gross capital spending of $12.9 million, a decrease from $23.9 million in Q1 2023119 Item 3. Quantitative and Qualitative Disclosures About Market Risk The company reports no material changes from the quantitative and qualitative disclosures about market risk as previously disclosed in its 2023 Annual Report on Form 10-K - There have been no material changes to the company's market risk disclosures since the filing of the 2023 Form 10-K128 Item 4. Controls and Procedures Management, including the Principal Executive Officer and Principal Financial Officer, concluded that the company's disclosure controls and procedures were effective as of March 31, 2024, with no material changes in internal control over financial reporting during the quarter - The Principal Executive Officer and Principal Financial Officer concluded that disclosure controls and procedures were effective as of March 31, 2024129 - No material changes to internal control over financial reporting occurred during the first quarter of 2024130 PART II. OTHER INFORMATION Item 1. Legal Proceedings The company is not currently involved in any legal proceedings that are reasonably likely to have a material impact on its financial condition or results of operations - The company is party to various legal proceedings in the ordinary course of business but does not expect any to have a material impact131 Item 1A. Risk Factors There have been no material changes to the company's risk factors as described in its 2023 Annual Report on Form 10-K - No material changes to risk factors have occurred since the 2023 Annual Report on Form 10-K was filed132 Item 2. Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities During Q1 2024, the company issued approximately 192,000 shares of common stock in redemption of operating partnership units, which were exempt from registration, and while a $250 million share repurchase program is in place, no shares were repurchased under this program during the quarter, with a small number of shares surrendered by employees to cover tax obligations on vested stock awards - Approximately 192,000 shares of common stock were issued in Q1 2024 to redeem an equivalent number of OP units in an unregistered transaction134 - No share repurchases were made under the authorized $250 million program during the three months ended March 31, 2024135 Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including corporate governance documents, certifications by the CEO and CFO, and XBRL data files