Phillips Edison & Company(PECO) - 2022 Q3 - Quarterly Report

PART I. FINANCIAL INFORMATION Financial Statements (Condensed and Unaudited) Unaudited condensed consolidated financial statements reveal asset growth, increased revenues, and net income for the nine months ended September 30, 2022 Consolidated Balance Sheets Total assets increased to $4.73 billion, driven by real estate investments, with liabilities decreasing and equity growing as of September 30, 2022 | Balance Sheet Items (In thousands) | September 30, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Total Assets | $4,730,413 | $4,668,768 | | Net investment in real estate assets | $4,465,526 | $4,353,240 | | Cash and cash equivalents | $4,789 | $92,585 | | Total Liabilities | $2,115,506 | $2,192,442 | | Debt obligations, net | $1,872,939 | $1,891,722 | | Total Equity | $2,614,907 | $2,476,326 | Consolidated Statements of Operations and Comprehensive Income Q3 2022 revenues increased, but net income declined due to lower property disposal gains; nine-month revenues and net income both grew | Income Statement (In thousands) | Q3 2022 | Q3 2021 | Nine Months 2022 | Nine Months 2021 | | :--- | :--- | :--- | :--- | :--- | | Total Revenues | $145,654 | $132,334 | $430,333 | $395,785 | | Rental income | $142,857 | $128,826 | $418,835 | $386,784 | | Total Operating Expenses | $111,986 | $104,209 | $333,025 | $321,034 | | Depreciation and amortization | $60,013 | $53,901 | $178,008 | $165,829 | | Net Income | $12,173 | $16,562 | $38,826 | $23,069 | | Net income attributable to stockholders | $11,038 | $14,633 | $34,645 | $20,330 | | EPS (basic and diluted) | $0.09 | $0.13 | $0.30 | $0.21 | Consolidated Statements of Equity Total equity increased to $2.61 billion, driven by net income, common stock issuance, and positive changes in interest rate swap values - Total equity increased by approximately $138.6 million during the first nine months of 2022, from $2.476 billion to $2.615 billion[12] - Key drivers for the equity increase in the first nine months of 2022 included net income ($38.8M), issuance of common stock ($90.1M), and positive changes in AOCI from interest rate swaps ($51.4M), offset by distributions to stockholders and noncontrolling interests (totaling $106.3M)[12] Consolidated Statements of Cash Flows Operating cash flow increased, investing activities shifted to net cash use due to acquisitions, and financing cash use decreased significantly | Cash Flow Summary (In thousands) | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | | :--- | :--- | :--- | | Net cash provided by operating activities | $228,763 | $198,313 | | Net cash (used in) provided by investing activities | ($276,275) | $37,835 | | Real estate acquisitions | ($229,895) | ($88,954) | | Proceeds from sale of real estate, net | $27,286 | $180,340 | | Net cash used in financing activities | ($43,571) | ($253,870) | | Net Decrease in Cash | ($91,083) | ($17,722) | Notes to the Financial Statements Detailed notes cover the company's REIT focus, real estate activities, debt structure, derivative use, and equity transactions including an ATM program - The company is a REIT primarily investing in omni-channel grocery-anchored neighborhood and community shopping centers, owning 270 properties and a 14% interest in a joint venture as of September 30, 2022[20][21] - During the nine months ended September 30, 2022, the company acquired 5 properties and 3 outparcels for a total price of $229.9 million and sold 3 properties and 3 outparcels for net proceeds of $27.3 million[32][34] - In May 2022, the company amended its credit facility, increasing the unsecured revolving credit facility from $500 million to $800 million and replacing LIBOR with SOFR as the benchmark interest rate for certain loans[37] - Under its At-the-Market (ATM) program, the company issued 2.6 million shares for net proceeds of $89.2 million during the first nine months of 2022[51] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses strong portfolio performance, high occupancy, Same-Center NOI growth, and robust liquidity, noting inflation and interest rate risks Overview and Portfolio Statistics The wholly-owned portfolio comprises 270 properties with 97.1% leased occupancy and $429.0 million ABR, focused on necessity-based tenants | Wholly-Owned Portfolio Statistics | September 30, 2022 | September 30, 2021 | | :--- | :--- | :--- | | Number of properties | 270 | 267 | | Total square feet (thousands) | 31,098 | 30,443 | | ABR (thousands) | $429,005 | $388,272 | | Leased occupancy % (Total) | 97.1% | 95.6% | | Leased occupancy % (Anchor) | 98.9% | 97.6% | | Leased occupancy % (Inline) | 93.6% | 91.9% | - The company estimates that approximately 71% of its ABR is generated from tenants providing necessity-based goods and services[103] - The top three tenants by ABR are Kroger (6.3%), Publix (5.5%), and Albertsons (4.2%), highlighting the portfolio's focus on major grocery anchors[104] Results of Operations Q3 2022 revenues grew, but net income decreased due to lower property disposal gains; nine-month revenues and net income both increased significantly - Key macroeconomic risks include increased inflation, potentially impacting tenants and operating costs, and rising interest rates, which could slow economic growth[106] | Leasing Activity (Comparable Leases) | Q3 2022 | Q3 2021 | Nine Months 2022 | Nine Months 2021 | | :--- | :--- | :--- | :--- | :--- | | New Leases Rent Spread | 21.3% | 14.1% | 31.3% | 14.9% | | Renewal Leases Rent Spread | 15.5% | 8.9% | 14.9% | 8.2% | - The portfolio retention rate for expiring leases was 88.5% in Q3 2022 and 90.1% for the first nine months of 2022[116][118] Non-GAAP Measures Key non-GAAP metrics show strong growth, with Same-Center NOI increasing and Core FFO per diluted share at $0.58 for Q3 2022, reflecting improved operational performance | Same-Center NOI Growth | Q3 2022 vs Q3 2021 | Nine Months 2022 vs 2021 | | :--- | :--- | :--- | | Total Revenues | 4.8% | 4.7% | | Total Operating Expenses | (6.0)% | (3.6)% | | Total Same-Center NOI | 4.3% | 5.1% | | FFO per Diluted Share | Q3 2022 | Q3 2021 | Nine Months 2022 | Nine Months 2021 | | :--- | :--- | :--- | :--- | :--- | | Nareit FFO | $0.55 | $0.46 | $1.62 | $1.44 | | Core FFO | $0.58 | $0.54 | $1.70 | $1.73 | Liquidity and Capital Resources The company maintains strong liquidity from operating cash flow, credit facilities, and ATM programs, with improved leverage ratios and increased distributions - Primary sources of liquidity are operating cash flows, dispositions, borrowings from the unsecured revolving credit facility, and ATM offering proceeds[133] | Financial Leverage Ratios | September 30, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Net debt to Adjusted EBITDAre - annualized | 5.4x | 5.6x | | Net debt to total enterprise value | 34.2% | 30.6% | - In August 2022, the Board authorized a 3.7% increase in the monthly distribution to $0.0933 per share, effective for the September 2022 payment[143] Quantitative and Qualitative Disclosures About Market Risk No material changes have occurred in the company's quantitative and qualitative disclosures about market risk since its 2021 Annual Report on Form 10-K - There have been no material changes to the company's market risk disclosures since its 2021 Annual Report on Form 10-K[150] Controls and Procedures Management concluded that disclosure controls and procedures were effective, with no material changes in internal control over financial reporting during the quarter - Management concluded that disclosure controls and procedures were effective as of September 30, 2022[151] - No changes in internal control over financial reporting occurred during the quarter ended September 30, 2022, that have materially affected, or are reasonably likely to materially affect, internal controls[152] PART II. OTHER INFORMATION Legal Proceedings The company is not currently involved in any legal proceedings likely to have a material impact on its financial condition or operations - The company is not party to any material legal proceedings[153] Risk Factors No material changes to the company's risk factors have occurred since its 2021 Annual Report on Form 10-K - No material changes to the company's risk factors have occurred since its 2021 Annual Report on Form 10-K[154] Unregistered Sales of Equity Securities and Use of Proceeds The company issued 528,000 common shares for OP unit redemption and approved a $250 million share repurchase program, with no repurchases in Q3 2022 - In Q3 2022, approximately 528,000 shares of common stock were issued in redemption of OP units, exempt from registration under Section 4(a)(2) of the Securities Act[156] - A new share repurchase program for up to $250 million of common stock was approved on August 3, 2022; no repurchases were made under this program in Q3 2022[157] Exhibits This section lists exhibits filed with the Form 10-Q, including corporate governance documents, CEO/CFO certifications, and XBRL data files