Phillips Edison Grocery Center REIT II Increases NAV, Reports 1Q18 Results

May 14, 2018

Phillips Edison Grocery Center REIT II Inc., a publicly registered non-traded real estate investment trust, increased its estimated value per share to $22.80 as of March 31, 2018 and reported its financial results for the first quarter of 2018.

The company’s board increased the estimated value per share of its common stock to $22.80 as of March 31, 2018, based on the range of $21.27 to $24.17 provided by Duff & Phelps, an independent third-party valuation firm.

This represents an increase of approximately 0.2 percent compared to last year’s $22.75 NAV per share. Shares were originally sold to investors for $25.00 each.

“Our portfolio of well-occupied grocery-anchored shopping centers produced strong results during the first quarter of 2018, as illustrated by our 7.7% increase in MFFO and 4.8% increase in same-center NOI,” said Jeff Edison, Chairman and Chief Executive Officer of Phillips Edison Grocery Center REIT II. “Our strategy of owning centers in strong demographic markets that provide necessity-based goods and services continues to yield strong results.”

First Quarter 2018 Financial Results

For the three months ended March 31, 2018, net loss totaled $1.3 million compared to net loss of $0.1 million during the three months ended March 31, 2017. The company said this was primarily driven by a $1.9 million increase in depreciation and amortization related to owning an additional eight properties when compared to March 31, 2017.

For the first quarter of 2018, funds from operations totaled $18.2 million, or $0.39 per share, compared to $17.4 million, or $0.37 per share, during the first quarter of 2017. The improvement in FFO was driven by an increase in net operating income generated by additional properties owned and the 4.8 percent increase in same-center net operating income.

For the first quarter of 2018, modified funds from operations increased 7.7 percent to $16.7 million, or $0.36 per diluted share, compared to $15.5 million, or $0.33 per diluted share, for the three months ended March 31, 2017. The increase in MFFO was directly correlated to the increase in FFO.

For the first quarter of 2018, same-center NOI increased 4.8 percent to $25.2 million, compared to $24.1 million during the first quarter of 2017. The improvement was driven by a 0.9 percent increase in same-center occupancy to 95.0 percent as well as a $0.05 increase in minimum rent per square foot versus the comparable period.

Contributing to same-center NOI were 74 properties that were owned and operational for the entire portion of both comparable reporting periods.

First Quarter Portfolio Results

At quarter-end, the portfolio consisted of 86 properties, totaling approximately 10.3 million square feet located in 24 states. This compares to 78 properties, totaling approximately 9.6 million square feet located in 24 states as of March 31, 2017.

Leased portfolio occupancy totaled 95.1 percent, an improvement from 94.5 percent as of March 31, 2017.

During the first quarter of 2018, 68 leases (new, renewal and options) were executed totaling approximately 305,000 square feet. This compares to 52 leases (new, renewal and options) executed totaling 159,000 square feet during the first quarter of 2017.

Comparable rent spreads during the quarter, which compare the percentage increase (or decrease) of new or renewal leases to the expiring lease of a unit that was occupied within the past 12 months, were 9.9 percent for new leases and 9.8 percent for renewal leases.

Balance Sheet Highlights

At quarter-end, the company had $267.4 million of borrowing capacity available on its $350 million revolving credit facility.

Net debt to total enterprise value was 42.9 percent at March 31, 2018.

The company’s outstanding debt had a weighted-average interest rate of 3.5 percent, a weighted-average maturity of 3.2 years, and 89.7 percent of its total debt was fixed-rate debt at March 31, 2018. This compared to a weighted-average interest rate of 3.5 percent, a weighted average maturity of 3.5 years, and 92.6 percent fixed-rate debt at December 31, 2017.

Share Repurchase Program

During the first quarter of 2018, approximately 259,000 shares of common stock, totaling $5.9 million, were repurchased at $22.75 per share under the SRP during the quarter.

Subsequent to the quarter end, in April 2018, approximately 293,000 shares of common stock, totaling $6.7 million, were repurchased at $22.75 per share under the SRP. Standard repurchase requests surpassed the funding limits under the SRP resulting in the company processing standard repurchase requests on a pro rata basis.

Phillips Edison Grocery Center REIT II Inc. invests in well-occupied grocery-anchored neighborhood shopping centers with a mix of national and regional retailers selling necessity-based goods and services, in strong demographic markets throughout the United States. As of March 31, 2018, the company owned a $1.7 billion retail portfolio consisting of 86 grocery-anchored shopping centers totaling approximately 10.3 million square feet. The company’s initial public offering launched in November 2013 and closed in September 2015 after raising $1.1 billion in investor equity, according to Summit Investment Research.

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